Cash Is Still King! The Holiday Credit Card Crunch

December 22, 2008 • Fashion

The fashion industry is majorly suffering from years of conspicuous consumption  and the party is over. The consumer credit bubble that helped Americans fill their closets and propelled unprecedented store openings has burst.
The retail fallout as shoppers become savers will not be clear until after the holiday season. But one thing is certain: 2009 won’t see any consumer spending sprees, and retailers will have to adjust pricing and inventories accordingly, according to WWD.

“By the end of January, we will have many fewer retailers than we do today,” said Charles McMillion, president and chief economist at MBG Information Services, who has been trying for years to raise the alarm on consumer indebtedness.

Visas_2 It will take even longer to determine how consumer attitudes toward credit are changing. Credit in all its forms is falling out of fashion.

“We don’t know how long it will last, but this is definitely a new attitude toward credit,” McMillion said. “The majority of households have probably been spending more than their aftertax income for four years. They were able to refinance their homes, and they were able to get loans of one type or another, whether with credit cards or something else. Now that they don’t have access to new debt, they don’t have any choice but to cut back spending.”

“What we’re seeing is a dramatic retrenching in households in terms of the debt they hold,” said Frank Badillo, senior economist at TNS Retail Forward. “We’ve seen an expansion in the availability of credit by the financial industry that helped drive a boom in retail spending and retail expansion. Now that that easy credit has disappeared, it’s clearly taken away one of the key drivers of retail sales in recentCash  years.”

Last week, TNS predicted sales would not see a clear rebound until 2010. The downdraft in credit also means shoppers are going to be on the lookout for deals more than ever — and not just during this dismal holiday season.

Some of this shift in attitude is simply an ebb in the usual cycle. Economists expect consumers to take a more cautious stance during recessions and therefore not run up credit card bills — no matter how much they want that Downtown tote from Yves Saint Laurent (that’s me!).

Despite all the comparisons with the Thirties, many economists said the economy is in better shape today simply because policy makers are acting aggressively, if not consistently, to avoid another Great Depression. The problem is, there’s really no telling where the meltdown that began with subprime mortgages and then spread to banks and investors and everyone else will take us.

Source & Photo: WWD
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One Response to Cash Is Still King! The Holiday Credit Card Crunch

  1. This is so sad but true. Last year I bought most of my Christmas on credit. Sadly, I am still paying on those debts this Christmas season.
    As a retailer, I understand that during this time everyone is going to have a smaller budget for commodities such as jewelry. This means I will have to cut my prices and have less profits.

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