September 17, 2001
Terrorist tragedy may bode ill for retail sales and the economy
WEST LAFAYETTE, Ind. Retail sales will be negatively affected by the recent terrorist-inflicted tragedy in New York City and at the Pentagon, says a Purdue University professor and consumer researcher.
"Retail sales will be negatively affected by the recent tragic events," says Richard A. Feinberg, professor of consumer sciences and retailing and director of Purdue's Center for Customer-Driven Quality. "Unfortunately, since retail sales are such a large driver of the economy, the national economy will be significantly affected for some time to come."
Consumer spending is responsible for two-thirds of the nation's overall spending, Feinberg says. "At a time when the retail environment has been very difficult and the country has edged itself into a slowdown, the recent events will not make things any easier."
For retailers, the current period is squarely in the back-to-school season. Retailers are selling off their remaining summer merchandise in preparation for the fourth quarter, the annual retail make-or-break sales performance and profit period.
Feinberg says if retailers cannot rid themselves of summer merchandise, they will have less money to buy holiday merchandise. "This would have a huge impact on fourth-quarter performance."
September and October are significant, Feinberg says, "because this was the period over which consumers are receiving their tax rebate checks. I expect that more than 50 percent of this cash, representing about $2 trillion, would have immediately been put back into the retail system and thereby buoyed the economy.
"This is now less likely to happen immediately because consumers are simply less likely to spend their money in the days and weeks immediately surrounding the events of this past week."
Feinberg sees the tragedy as depressing consumer confidence, which drives consumer spending.
"Consumers have been riveted to their television sets, making it less likely that they will go out and engage in tax-windfall-driven, discretionary spending," Feinberg says.
There are certain categories of retail spending that appear to have been positively affected, Feinberg says.
"A quick survey of major retailers showed that consumers have purchased more milk, bottled water, batteries and significantly more American flags."
Feinberg says one of the other significant roles that retailers will play will be as the focal point for donations to individuals and families affected by the events of the past week.
"Retailers will singularly and collectively begin donation programs in the form of employee contributions, percentage of consumer sales donated, donation of merchandise," he says. "This will present an opportunity for consumers to do some good."
Another economic scenario suggests that after an initial spike downward in retail sales, they may bounce back, Feinberg says.
"This depression may be short term. Following the depressive psychological affects of the recent events, consumer confidence may rebound as if American consumers will want to send the message that we cannot be defeated."
This slowdown is significant for retailers and is coming at a critical time. As a result, retailers will try to attract customers back into their stores to spend by aggressively promoting their goods by advertising and with sales, Feinberg says.
"This may have a significant rebound effect on consumer spending going into the crucial holiday season shopping. If this is the case, consumers will have money they did not spend in stores because of the tragic events in addition to the money from the tax rebate.
"So we could see a positive retail rebound in the fourth quarter that could actually lead the economic recovery into next year."
Writer: J. Michael Lillich, (765) 494-2077, email@example.com
Source: Richard A. Feinberg, (765) 494-8301, firstname.lastname@example.org
Purdue News Service: (765) 494-2096; email@example.com