October 6, 2009 in Business

Retail’s headache is shopper’s delight

Times are tough, but smart consumers can save a bundle
Rachel Beck Associated Press
 
Associated Press photo

Karen Wilmes, of Hopkinton, R.I., sorts though her coupons during a shopping trip with her 2-year-old daughter, Allison, in Westerly, R.I. By purchasing items on sale, using her loyal customer card and coupons, Wilmes saved $54.54, spending $39 on $93.54 worth of groceries.
(Full-size photo)

NEW YORK – There has never been a better time to be a consumer. America is on sale.

The Great Recession has caused massive job losses and hardship for millions, but it has also fostered a shoppers’ paradise. Anyone who still has the means to spend can find unheard of deals.

Prices on everything from clothes to coffee to cat food are dropping, some faster than they have in half a century. Items rarely discounted – like Tiffany engagement rings – are now. The two biggest purchases most people make – homes and new cars – are selling at steep price reductions.

“This is the new normal,” says Donald Keprta, president of Dominick’s, a supermarket chain in the Midwest, which just cut prices by as much as 30 percent on thousands of items. “We aren’t going back.”

What’s happening now has been building for years. Wal-Mart Stores Inc. introduced “everyday low prices” many years ago. Amazon.com redefined the idea of bargain prices during the late 1990s when it helped introduce online shopping. After the 2001 recession, automakers introduced zero-percent financing to boost sales. McDonald’s “Dollar Meals” made fast food even cheaper.

But until the Great Recession came along, consumers hadn’t seen anything yet.

Last fall’s financial meltdown triggered a plunge in stock prices and home values and wiped out 11 percent – $6.6 trillion – of household wealth in six months. It also put an end to easy credit, which had fueled the consumption that powered the economy for most of the decade.

Those who still have jobs don’t want to spend as they once did. There is a new societal pressure to be careful and smart when buying almost anything. From Chicago’s Miracle Mile to malls around Orange County, Calif., it was once a status symbol to trot around with armloads of shopping bags with designer names on them. Now, it’s considered ostentatious.

Traditionally, manufacturers and retailers lowered prices to clear inventory. Today, they’re cutting prices because consumers are demanding it. If it lasts, the ramifications will be wide-ranging.

“There’s almost a new morality to spending,” Liz Claiborne Inc. CEO Bill McComb told an investor conference last month.

The bargains being offered at the Garden State Plaza in Paramus, N.J., make it seem the day after Christmas. But it’s only a weekday in September. The deals start at 25 percent off and keep getting better. Neiman Marcus, Forever 21, Ann Taylor, Macy’s, Gap – across the retailing spectrum there are promotions.

Retail sales remain sluggish, and more than half of the people surveyed recently by America’s Research Group and UBS said they are shopping less. But when they do shop, most go to stores with lower prices or wait for sales before returning to their favorite retailer, according to the survey.

Dave Ratner sees this price chase firsthand. His four-store chain in western Massachusetts, Dave’s Soda & Pet City, has never been so focused on promotions and low prices.

During the past year, customers stopped buying $50 bags of premium dog food and “special” $10 pet treats. Pet-related Halloween merchandise usually sells well, but he isn’t stocking any this year because he doesn’t think people will buy it. Instead, he’s offering big discounts on cheaper brands of pet food.

“It’s killing my profit margins, but if you don’t offer specials and lots of promotions, you aren’t operating in the current world,” he said.

Great buys are not exclusive to retailing. The government’s cash for clunkers program is over, but more than half of car buyers still get a cash rebate, according to J.D. Power & Associates.

Hotel rooms cost travelers nearly 20 percent less, on average, than last year, the biggest decline since Smith Travel Research began collecting data in 1987.

Home prices have dropped 30 percent, on average, from the peak in 2006. In some markets, they’re down more than 50 percent. Homes in parts of Detroit are cheaper than a new car.

Overall, prices are tumbling at the fastest rate in decades. The government’s Consumer Price Index, which measures the average price of goods and services purchased by households, has fallen 1.5 percent over the last 12 months. The reading for July showed a 2.1 percent annual decline, the biggest since 1950.

The largest decline has been in energy prices, but other areas have fallen, too. Among them: food, appliances, furniture, jewelry, sporting goods, audio and visual equipment and apartment rents.

But ever-lower prices have risks, too. The more shoppers expect prices to fall, the less they shop until prices drop. It becomes a self-fulfilling prophecy that forces companies to keep cutting. That reduces profits, making it less likely companies will hire workers or raise wages. Economists say the worst scenario would be a deflationary spiral, which Japan has been stuck in for the last two decades.

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