Remember: It’s the Consumer, Stupid
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I was questioning my dark view on the economy during a phone conversation the other day with a major retail CEO. I recounted how surprised I was that the words “double dip” or “another recession” was never even hinted about during a recent seminar I had moderated – not from the Goldman Sachs economist who opened the event, not from a Partner at Kurt Salmon, and not from our three panelists: the CEOs of Warnaco Inc. and Iconix; and, the CMO from Gilt Groupe.

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So, I asked something like, “… am I a total cynic about this economy? Those guys in my seminar talked and acted like, hey, things are okay, slow but, the consumer is still shopping and buying, and they felt the Holiday season was probably going to be fine. Granted, there were no “high fives,”….etc…..so, since I have you on the phone, how is your business?” And, he said something like, “…. It’s okay, the consumer is still spending…..if you watch the news, and hear 24/7 how bad things are around the world and with our economy, you could get real depressed.” (I appreciated he didn’t call out The Robin Report as a part of the depressing news sources). He finished his remarks with something like, “…..we just keep moving forward …. Our business is good….and I think we’ll have a good Holiday…etc.”

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Well, I pinched myself and thought, okay, I’m still alive, my brain isn’t dead, but maybe I should step back, take a deep breath and soften my view on the economy – maybe let a little ray of sunshine into my life. Smile and be happy, I thought.

And then, whammo!! A Wall Street Journal, October 1, headline: “Americans Tap Savings to Keep Up With Prices: The income of Americans fell for the first time in nearly two years during August, while spending increased a bit.”

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Back to reality for me. Personal income dropped 0.1% for August from July, with disposable income falling 0.3%. Wages also fell. Nevertheless, spending rose 0.2% — BUT NOT BY CHOICE. The entire increase was due to higher costs, mostly food and energy. So, consumers had to dip into savings just to maintain their standard of living. They saved 4.5% in August, down from 4.7% in July and 5.6% a year earlier.

Could one say they are struggling to simply “hang on?” Mark Vitner, an economist with Wells Fargo says, “Consumers are having to pull out all the stops in order to maintain their standard of living.” And, the Economic Cycle Research Institute, a forecasting firm, said that based on its analysis of dozens of indexes, the U.S. economy is falling into another recession. “And there’s nothing that policymakers can do to head it off.”

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Those are grim words, indeed. However, they are based on some real grim facts. And, my rather grim logic tells me that when consumers peek into the discretionary part of their wallet (much less their savings account), and ask themselves, “….do I really need another pair of jeans or another hand bag to maintain my “standard of living?”…… my logic tells me the answer will ultimately be “no.”

It’s simply a question of when that consumers’ logic will emerge. So, reaching into my sunnier side, let’s hope our retailers can enjoy another “okay” Holiday season.

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