Experts Say Recent Wall Street Tumbles Could Further Rattle Consumer Psyche

The roller coaster ride that is the financial marketplace over the past month will not affect retail open-to-buy dollars or inventories for the holiday season. But experts say retailers should get used to a phrase that will become much more important than any government bailout. That phrase: “the psyche of the American consumer.”

“Retail stocks may have hit their bottom in July. The real fluctuations are in the psyche of the American consumer,” says Bob Carbonell, EVP and Chief Credit Officer of retail financial analyst firm Bernard Sands. “What is the American housewife going to do this Christmas? The holiday season is everything, much more so this year than any other year.”

Prognostications from most every corner say that psyche is rattled and cautious. Holiday spending will most certainly be well off last year’s pace. But the depth of that decrease, the products that will succeed in hitting sales goals, the retailers that will attract customers, and the channels that will prevail are still very much in play. One relief can be found in the sound fundamental structure of retail purchase budgets and the credit necessary to execute them. Experts point to three reasons for that stability:

1. Timing: It’s simply too late in the sales cycle to back out of inventory commitments. “There’s just not a whole lot of time left in terms of actionable steps retailers can take, if they wanted to,” says Aberdeen retail analyst Ben Ream.
2. Retail Financing is Solid: Carbonell points out that the banks that lend most of the money to key retailers have not been caught up in the mortgage-based securities that have crippled many firms. Bank of America Retail Finance, GE Captial, and LaSalle financial are among the retail lending leaders and have established themselves as liquid.
3. Business Model Simplicity: Retailing is retailing, say many experts. “You buy stuff, you sell stuff, you answer questions politely, you treat your customers well,” says Carbonell. “Retailing has remained true to some very basic tenets and has avoided some of the complex issues that have hurt other businesses.”

Outside of the core fundamentals, retailing has become more complex in how goods are sold and how information is accessed. Therefore the cross-channel framework may be more important in addressing the damaged psyche of the cross-channel customer. Ream believes consumers will go “the extra mile” in terms of product research, price comparisons, product reviews and store locations this year in order to ensure that the purchase decisions they do make will be the most informed. Ream urges retailers to heavy up on cross-channel preparation and measurements. Understanding conversion rates in all channels, units per transaction, and repeat purchases are even more important to understand in a tough economy.

While open-to-buy dollars are expected to remain solid, promotional dollars have already taken a hit. Best Buy has officially announced an advertising cutback for the balance of the year, and tough Q3 numbers may lead more retailers to follow suit.

In terms of measuring the consumer psyche, Carbonell is looking toward Halloween as an early barometer. On a positive note, Visa has predicted an 18% bounce for Halloween, even after the stock market slide. The average person will spend $47 on candy and decorations, this year, up from the $40 Americans reported they were planning to spend on Halloween last year.
"Depriving our children, and our neighbors' children, of Halloween trick or treating is not something Americans seem willing to bear," said Jason Alderman, Director of Financial Education at Visa Inc.

Retailers arehoping that will hold true for spending around year-end holidays as well.