Although inventories and expenses have already been slashed in response to the slowing economy, the current Wall Street crisis is apparently causing many retailers to re-examine their pricing, promotions and inventory plans for the holiday season. Even marketing messages may need to be softened as consumers grapple not only with shrinking 401Ks and home values but a loss of faith in the financial system.
"This is like watching a car crash, but the two vehicles haven't hit yet," Marian Salzman, chief marketing officer for public relations agency Porter Novelli, told the Associated Press last week before the U.S. government's bailout plan was announced. "Is this the worst week, or are we waiting for the other shoe to drop?
The bailout of financial institutions announced on Friday is designed to free up credit for consumers as well as companies albeit with tighter restrictions. But, as the Washington Post noted, "the economy remains fragile with consumer confidence flagging, spending down and unemployment at its highest level in five years. The turmoil on Wall Street could further slow spending, the economy's key engine."
Economists told the newspaper that the more stringent credit standards would be the most immediate impact of the financial crisis for businesses and consumers. Those with the weakest credit ratings and most questionable assets are likely to find loans more expensive and harder to get, while those deemed good credit risks could be largely unaffected.
One channel expected to be particularly hard hit is luxury stores. The strengthening dollar has been hurting tourism traffic in metropolitan cities, but layoffs and lost bonuses on Wall Street are also expected to reduce high-end spending.
"New York City is at the epicenter of the slowdown," wrote Goldman Sachs analyst Adrianne Shapira in a research report. "The slowdown will undoubtedly ripple beyond NYC to impact others tied to high end spending."
But Michael Dart, a principal at consulting firm Kurt Salmon Associates, told The Associated Press that he believes all stores will have to rethink their plans given an "unprecedented" chain of events that could depress consumer confidence even more. He does expect dollar stores and discounters will have more opportunity to gain market share this holiday season.
Discussion Questions: How do you think the Wall Street crisis will play out at retail? Which retailers do you think will be hurt most? How should stores respond?