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Can High-End Consumers Save the Holiday Shopping Season?

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In a reversal of the old Scrooge narrative, it might take our nation’s richest to save Christmas or, at least, the holiday shopping season.

With consumer confidence hitting historic lows, the industry wide anxiety is that pressure to lure in customers with promotional discounts decimates retail margins. And that pressure might be heavier than in recent years given that discretionary spending has essentially hit the floor, especially for clothing, toys and general merchandise.

Now that the value conscious consumer vigilantly hunts for bargain basement prices, and has every reason to expect to find them, the holiday season’s salvation seems to rest with the high-end consumer, who has generally seen his property values rise and stock portfolio appreciate.

Jacob Oubina, RBC Capital Markets economist, observed, “Retailers were counting on higher-end consumers to carry them through the holidays. Since the government shutdown, that cohort has retrenched and that doesn’t bode well for holiday sales.”

And their has been some promising signs, especially with regard to home improvement related sales. As property owners begin to feel better-heeled again, and interpret their homes as sources of future value, they funnel their earnings into equity building projects.

However, there is some evidence that even affluent consumers have been chastened by persistent economic uncertainty. Speaking to the Wall Street Journal, Sung Won Sohn, economics  professor at California State University, contends that even high-earning consumers have had their confidence shaken. Unspectacular wage increases and an expiration of a suspended payroll tax are the main culprits behind lingering wariness, fueling stubborn frugality rather than consumption.

Also, the tempestuous political climate has had a chilling effect on American commerce. The protracted federal shutdown frightened Americans on two grounds: that gathering debt will hamstring an already wounded economy and that a dysfunctional political process is impotent to do anything about it. And the chaos that ensued during the initial rollout of the Affordable Care Act has highlighted not only its grave inefficiencies but also the ways in which such a massive entitlement program might stymie an economic turnaround.

Most retail analysts predict a grim holiday showing. The Morgan Stanley study, “Expect Coal: We Predict the Weakest Holiday Since 2008,” anticipates an anemic 1.6% rise in same-store apparel retailers. One big reason for the stagnant performance is the stubbornly frugal consumer, still slow to spend faced with an uncertain economy. The National Retail Federation expects that the average holiday shopper will spend about 2 percent less than they did last year, with 51 percent saying that economic worries are constraining their spending habits and 80 percent planning to spend less this year than they did last year.

The study confirms the result of another report recently issued by the CFI group, a search firm headquartered in Ann Arbor, Michigan, “Holiday Retail Spending Report 2013,” which paints a dour picture of the challenges this year’s shopping season promises. At least in part, the less than stellar forecast is attributable to consumer wariness in response to an intractably uncertain economy. A mere 21 percent of consumers plan to spend more on gifts than they did last year. The bulk of would-be shoppers reported they intend on spending less, guided by a spirit of frugality rather than holiday cheer.

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