Is a Holiday Shopping Shutdown Next?

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Consumers: I'll be broke for Christmas.
Consumers: I'll be broke for Christmas.

Pierced by the government shutdown, the October Consumer Confidence Index plunged nine points in the last month, registering 71.2 out of a possible 100. The timing of the drop in the Conference Board's measure of current and future buying intentions, released this week, complicates the coming holiday season for retailers and e-commerce companies that commit to inventories in August and September.

The University of Michigan also recorded declines in its consumer sentiment index in three of the last four months, noting that negative comments concerning the government's handling of the economy in its survey hit their highest point in 50 years.

“It's a tricky dynamic, because the cause of this was self-inflicted. It's not tied to an unexpected event like a storm or a terrorist attack,” says Paul Martyn, VP of supply strategy at BravoSolution, which helps manage inventory for many of the nation's top retail chains. “You'd think this was something you could have a quick recovery from, but the budget ceiling debate is casting a dark cloud over this holiday season.”

From a planning point of view, this is the trickiest time of the year for retailers, Martyn says. They start placing holiday orders based on consumer sentiments measured in the summer. This past June, the Conference Board's index hit 82.1, its highest level in more than five years.  In September, when orders were being finalized, it was at 80.2. Then the bottom dropped out.

“There's little room for retailers to maneuver. Their bets were all placed in that September time frame, and this significant drop in confidence is counter to the trend,” Martyn says.  “A good jobs report could aid a recovery.”

Gary Ambrosino, who works with chains including Nordstrom and Best Buy on customer experience strategies, foresees a challenging holiday season that will be won by retailers who satisfy consumer's growing personal needs.

“The bottom line is that, when customers are happy, they buy more,” says Ambrosino, COO of Time Trade. “What consumers are really saying is that they need to be given more confidence to buy something.  So if retailers can connect with people online or via social media and tend to their needs personally with associates in stores, people will spend more money with them.

Should consumer sentiment remain non-jolly, however, the holiday shopping season is bound to be disappointing for many merchants—except those selling excess inventory. “There certainly would be opportunities for e-coms and stores selling secondary inventory,” Martyn says.

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