Retail sales fall 5.1% in July

More than a temporary setback

Andrea Chang's article in the LA Times last week entitled “Retail sales fall 5.1% in July despite back-to-school lures” exemplifies the mindset of today's US consumer. There is a “batten down the hatches” approach to this economic storm that has left most purchasing decisions being made on a case by case basis. Consumers are continuing to ask themselves “Do I really need this?” and then choosing not to buy. Most consumers have experienced a paradigm shift in the way they see the world. Precepts such as “my home will continue to increase in value” are no longer valid leaving the consumer wondering if any economic principles will stand the test of time. As a result, consumers are learning to live with less; some, in fact, have chosen to permanently simplify their lives as they prefer the reduced stress that comes with it.
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It's going to take a lot more than seasonal markdowns to entice today's consumer to start shopping again on a regular basis. Despite a 40% drop in the price of gasoline from its $4 per gallon peak in July 2008, consumers continue to purchase hybrid and other high mileage cards, if they choose to buy at all. There is an unspoken but pervasive fear amongst consumers that things may not improve for a while. “I may have a job today, but will I tomorrow?” or, “Will the housing market ever recover?” With unemployment approaching 10% and millions of homes going into foreclosure, retail sales will continue to languish. Consumers who make up two-thirds of the economy are not going to put their families' savings at risk unless they believe there is a fundamental change in our economic structure.

To get consumers shopping again, Americans are going to have to be convinced that the US economy has a long-term positive outlook. To get there, America needs to get through the financial and real estate crises that are paralyzing the nation. This will begin to eliminate the fear of deflation and entice consumers to hold onto their homes instead of leaving them in droves as they did this past year. Furthermore, unemployment rates need to stabilize and begin to decline. When America gets back to work it will also get back to buying more than the bare essentials. Finally, the US must embark on a well articulated energy policy that makes America less dependent on foreign energy and more independent from using its own plentiful energy resources. When these things are in place, not only will consumers feel better about shopping, they will have the resources to do so.

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Pete Canalichio

August 17, 2009