Scrooge Goes To the Mall

Santa Claus kicked off the Christmas shopping season in grand style last week in St. Louis, where he was escorted by 3,000 children to his castle at the sprawling 200-store Northwest Plaza. In New York City, Macy's staged its lavish Thanksgiving Day parade, towing Bart Simpson and 12 other giant balloons to Herald Square, where a 36-ft.-tall Paddington Bear now hovers invitingly above the entrance of the flagship store. In San Francisco holiday shoppers were making a beeline for the free merry-go-round and other rides on the roof of the Emporium. Across America, retailers are trying all sorts of stunts to get folks inside their stores between now and the holidays. But once there, will they buy?

Fearing the answer, shopkeepers are bracing for what may be the toughest Christmas selling season in a decade. Says Bernard Brennan, chief executive of Montgomery Ward: "There are more negative dynamics working than at any other time I've seen in my entire marketing career." After a year in which retail sales barely kept up with a 4.8% inflation rate, merchants have watched even that shopping pace flag just before the onset of the most important selling season of the year, one that typically accounts for as much as 60% of annual retail profits. Overall, sales (excluding gasoline) fell 0.1% in October.

Anxious consumers may be strolling the aisles, but they are holding on to their wallets more and more tightly. Fears about possible war in the Persian Gulf are piling upon recession worries and news of spreading corporate cutbacks. One consumer sounding after another is recording the development of a batten-down-the-hatches mentality. Since Iraq invaded Kuwait, consumer confidence has fallen to its lowest level in 44 years. In a national survey of 500 consumers conducted last week by the Leo Burnett advertising agency, 82% said the economy was in worse shape now than it was a year ago, while 40% said they were feeling the pinch themselves.

A chill in consumer spending this Christmas would come at the worst possible time for a retailing industry that is desperately overbuilt and heavily indebted. While the U.S. population grew only 10% during the 1980s, a building boom expanded retail square footage 75%. As a result, nearly half of all retail space is superfluous, according to Management Horizons, the market- research division of Price Waterhouse. Making matters worse, a frenzy of mergers and acquisitions during the past few years has saddled the 30 largest retail companies with a staggering debt burden of $60 billion. Struggling to meet interest and debt payments, those companies must capture customers in order to survive. Says Gap chairman Donald Fisher: "It's going to be brutal."

Christmas sales started especially early this year, as nervous retailers tried to get a head start on the competition. Labor Day had barely passed when some retailers started decking their shelves with tinsel and flashing lights, startling more than a few suntanned customers. By Halloween, major stores were slashing prices on everything from furs and evening clothes to CD players and toys.