Consumers Continue to Watch Spending; Retailers Sales Slump

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Despite encouraging news from some analysts that the nation’s economy is on the mend, consumers continue to watch their spending. And that’s evident in recent retail earnings reports. WOSU spoke with a local retail analyst to find out why people have not loosened their purse strings.

Sarah Kuhnell walks out of the Whetstone Library in Clintonville. She expects her first child in October. She worked in marketing, but she lost her job in the spring. “Because of that we’re definitely just being tighter with our budget. We always budget and just be aware of how we spend and trying to save where we can,” Kuhnell said.

Kuhnell’s story is not uncommon. Ohio’s unemployment rate reached 11 percent in June, two percentage points higher than the national average. So it’s no wonder retailers report waning earnings.

Recently, Cincinnati-based Macy’s reported an almost ten percent decline in sales in the second quarter compared to 2008. Target’s sales slipped by almost three percent during the same time. And in a preliminary report by Forbes.com, Columbus-based Limited Brands total sales fell by ten percent in the second quarter. The company is expected to release its figures today.

Rao Unnava is an Ohio State University marketing professor. He said the uncertainty surrounding employment and salary are two reasons people are not shopping.

But Unnava was quick to note that current spending assessments are not necessarily clear-cut.

“All these comparisons we are making are with a time period when consumers were spending less responsibly than they are doing today. So what we had was to begin with an inflated number in terms of how consumers were spending because credit was easy at that time there was hope that the economy would continue to grow and so even if I spend a little bit more than what I’m making chances are that my wage will go up and I will be able to pay it off,” Unnava said.

But Unnava said that is not the mind set consumers have in this economy. He noted that consumers used to spend $102 for every $100 they made. Essentially they went in the hole. But today they’re spending $94 for every $100 – so they’re saving money. Unnava said consumers will not always be this frugal, but he said the irresponsible spending, spending beyond one’s means, is gone for now.

“That part of the spending where people were willing to plunk down $5,000 for a state-of-the-art TV even though they didn’t have the money, that spending is going to not come back for quite some time. You know, we’re talking about ten or 15 years before people become confident again and start spending along those lines,” Unnava said.

Taking her two school-age boys into the Whetstone library, Heather Gott, called her family’s spending habits “moderate.”

“We always save up for what we’re going to spend before we spend it. We don’t use our credit cards for big expenses or even small expenses,” Gott said.

With school and the holiday season drawing near consumers can likely expect fewer choices at their favorite stores. Professor Unnava said in response to slumping sales, retailers are cutting back on inventory.

“The moment that you increase the selection a lot of other expenses go up…there’s damage to merchandise, there’s inventory costs, there’s pilferage…all these things now will be reduced and therefore even with their smaller selection people will still have profits in the retail sector that will actually help them stay alive in this economy,” he said.

For their part, consumers are likely to limit their spending to basic needs in the foreseeable future.

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