Deck The Shelves With Bargains Only

As a sculptor in Sausalito, Calif., Suzanne Simpson, 51, has done pretty well for herself. So has her husband, a certified public accountant. So why is Simpson planning to cut back by 25% the number of Christmas presents she'll give this year? Well, sculptors are practical, too. "We're very concerned about the economy," she says. "We haven't suffered, but we feel we have to be very, very alert."

The Simpsons represent a big problem for U.S. retailers who depend on the end-of-the-year holidays for as much as 40% of their profits. Now, with Labor Day over and no economic upturn in the cards, retailers are scrambling as never before for a mix of goods, prices, and promotions that will help their bottom lines. Many believe they at least have a realistic fix on the consumer. In the words of Kurt Barnard, president of Barnard's Retail Consulting Group in New York, what they see is "an astounding portrait of a shopper with Neiman-Marcus tastes and a Kmart budget."

THE PRICE IS RIGHT. How do you get these frugal yet demanding consumers into the store? Not with big-ticket items: Moderate prices and small indulgences are more like it. At Dayton-Hudson Corp., watch and jewelry buyer Sue Toffanetti is stocking up on oversize, sporty watches by Swatch, Fossil, and Guess that will sell for $40 to $120 at the Dayton's, Hudson's and Marshall Field's chains. Executives at Frederick Atkins Inc., a buying association for 30 regional department-store chains, including Dillard's, see moderately priced, $100 leather jackets doing well. As for small indulgences, Bloomingdale's is installing a custom-made chocolate counter and "trying to create a fantasy land of gift-giving," with new gift wrap and prewrapped boxes, says Bloomingdale CEO Michael Gould.

Another button to press is the yearning to stay home instead of traveling or dining out. Accordingly, Patrick Connolly, senior vice-president for mail order at Williams-Sonoma Inc., has increased purchases for platters and serving pieces for big get-togethers such as Thanksgiving. "There's a hunger out there for shared rituals," he says. CEO Clark A. Johnson of Pier 1 Imports Inc. has ordered merchandise for budget-conscious homebodies with taste: marble and brass picture frames and bookends, and coffee stored in decorative jars.

One thing the new consumer doesn't stint on is the kids' Christmas. Kmart's toy buyers are betting that Walt Disney's video of Beauty and the Beast, due out Oct. 31, and Nintendo's Street Fighter II will be big hits. Kmart also has high hopes for toys that try to imitate real life, such as fire trucks that announce "clear the road," the Turbo Screamer football that mimics the roar of a packed football stadium, a Totally Hair Barbie with extra hair to groom, and a My Potty Baby doll that does the obvious.

MIX AND MATCH. Retailers hope women will indulge themselves in one area: a change of style from the miniskirts of the late '80s to tight midcalf skirts and '70s-style platform shoes. Even here, though, the consensus emerging is that women will cautiously experiment with the new look, but won't replace their entire wardrobes as they may have in the past. For one thing, hips have to be youthfully slim for a woman to look good in the new skirts--a challenge for the fortysomething crowd. And because these skirts and shoes are difficult to walk in, they won't be worn easily by women who commute to work.

Frugality counts now in fashion. At Hans Guild Co., a natural-fiber clothing store in Cincinnati, owner Greta Martinez sees her shoppers buying a casual skirt and blouse to go with a blazer they already own, then calling it a suit, instead of buying a whole new set of clothes. Last year, her Christmas sales were flat. This year, "Things are lagging far behind. We normally order about 10% more for Christmas, but this year we'll probably not add on."

As they lay in the toys, the skirts, the watches, and the knickknacks, retailers also know they need a boost from the economy. There has been some good news for the nation's stores. Chain-store sales rose 4.3% in August, a marked improvement over the 2.4% increase of August, 1991. Consumer spending, though sluggish, has been growing about 2%, slightly faster than the gross national product. Though not a huge gain, that's a lot better than 1991, when consumer spending fell 0.6% and GNP dropped 1.2%. These trends have led veteran retail analyst Edward F. Johnson of Johnson Redbook Service to predict a healthy Christmas, despite the naysayings of many other economists. "They have been pessimistic for too long," he says.

But the good news hasn't been good enough for many small retailers. According to Dun & Bradstreet Corp., the number of retail failures and bankruptcies rose 17%, to 9,952, in the first half of 1992. And data revealing a loss of 97,000 well-paid manufacturing jobs could give consumers another sign to go slow. Expecting the same stream of murky economic news, David A. Wyss, research director at DRI/McGraw-Hill, expects a 5% increase in overall holiday retail sales--about 2%, adjusted for inflation. "That's not great," he says. "But since last year's growth was negative, it's an improvement." Department stores will likely see very little of that gain, while retailers offering low prices and a value image--such as Wal-Mart, Dollar General, and Dayton-Hudson's Target--should have very good holidays.

EMOTIONAL OUTLETS. However optimistic they are, retailers know they won't have a repeat of 1983. That was the year retail Christmas sales jumped 13%, as the economy roared out of recession, consumer confidence soared, and Americans satisfied their pent-up yearning for all sorts of goods. Instead, retail executives may have to deal with the possibility that blockbuster Christmases are a thing of the past. "Four of the last five Christmases have been more mediocre than expected," says Carl Steidtmann, chief economist at retail consultants Management Horizons, who notes that three of these so-so holidays coincided with years of good economic growth.

The answer to this puzzle may lie in a permanent shift in frugality among consumers, who are generally older, more cautious about debt, and preoccupied with long-term worries such as paying for their children's education. This sort of consumer has no choice but to be a savvier Christmas shopper. "There's no question, people buy for the holiday all year round," says Kay Draisin, general manager of Factory Stores at Nut Tree, the nation's largest outlet mall, with 130 stores, in Vacaville, Calif.

In buying for Christmas in July, saving bucks is key. In March, Brucine Doherty, 45, a San Rafael (Calif.) mother of two teenage girls, bought a stack of Hallmark puzzles, marked off 50%, for Christmas. In June, she hit a Macy's sale of Laurel Burch earrings and pins, discounted from $35 to $10, for her mother. For her two daughters, she has stashed away a couple of sweaters she picked up on sale at The Gap Inc. All told, Doherty has pared back her Christmas spending from $3,000 a few years ago to $1,000 now. "We used to do a very big Christmas," she says. So did the stores.

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