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Big Spenders Are Reluctant to Shop Through the Drop

Consumers: Upscale retailers say they're beginning to feel Wall Street's pain.


Buoyant consumers have been the stabilizing force in an otherwise wobbly economy, but the stock market's current nose dive is raising questions about how long that can continue.

Retailers of luxury goods and services say they already are feeling the pinch of the market downturn, and economists fear the pain may spread.

"If the stock market continues to fall, it will affect everything, including houses and sales of consumer goods in general," said Sung Won Sohn, chief economist for Wells Fargo & Co. "None of us will be escaping the effects of the stock market plunge. Even if the stock market bottoms, the effect will linger on for a while. And the higher the price tag, the greater the effect."

The latest retail sales figures reported by the government show spending was up slightly in June compared with last year, but some merchants say they are seeing a change in spending habits.

"Where people were upgrading, upgrading, upgrading before, oblivious to cost, they are now trying to work deals and pinch pennies like you've never seen," said James Ahern, a travel agent specializing in adventure safaris and international cruises at First Class Travel in Phoenix. "And these are people who have the money. I know they have the money."

At Melisse, a French-American restaurant in Santa Monica where the average dinner check per person is $85, reservations are off by 20% this week, said general manager Michael Morrisette.

"I think people are getting a little scared and thinking twice before going out to dinner," he said. "Maybe instead of going out three or four times a week, they're eating out two times."

The shaky economy and tumbling stock market have led Hildegard Scolari, 65, of Newport Beach to cut back on shopping and travel.

"I can't spend money that I no longer have," said Scolari, a retired fashion industry executive who is invested heavily in the market.

Yacht dealer Gordon Barienbrock certainly wasn't glad to hear that the stock market had slid an additional 234.68 points on Monday. To cope with slackened demand, he said he has been forced to cut prices.

"The sale of luxury yachts is generally directly correlated to the stock market," he said. "When you buy boats like that, you have to feel rich."

The luxury market aside, however, some economists dismiss the idea that the market downturn will make a big dent in overall consumer spending, which accounts for two-thirds of the U.S. economy.

"Despite the democratization of the stock market, most households can't tap into the market, either to take advantage of gains or curtail losses, because most of it is locked up in mutual funds or retirement programs," said Carl Steidtmann, chief economist with Deloitte Research in New York. "At the end of the day, what drives consumer spending is cash flow, and the factors that affect cash flow are pretty positive right now."

Indeed, consumers have shown surprising resiliency. As the economy slowed last year--and took a staggering blow on Sept. 11--shoppers simply hastened the trend away from higher-end department stores and shopped more at discounters such as Wal-Mart and Target.

Some big retailers on Monday said trends so far this month are pointing to lower sales for July than last year in stores open at least a year.

Federated Department Stores Inc., parent company of Macy's and Bloomingdale's, said that based on monthly receipts so far, July sales are likely to be flat to slightly down.

J.C. Penney Co. said decent sales last week at its department stores put the division at the higher end of the company's forecast for July--which is 2% to 4% below July of last year.

Although retail sales in June were up by 1.1%, according to Commerce Department figures, the unexpected increase was mostly a result of pent-up demand after a weak May, economists said.

In another indicator this month that discretionary spending could be weakening, Tweeter Home Entertainment Group Inc., which sells mid-range to high-end consumer electronics products, said sales at stores open and under its ownership at least a year dropped 4.6% in the quarter ended June 30.

Tweeter's chief financial officer, Joe McGuire, blamed weaker June sales on the "major moves" in the stock market.

Tiffany & Co said it expects earnings to be at the low end of its previous expectations. And Zale Corp., the nation's largest specialty retailer of fine jewelry, said it expects established store sales to be essentially flat this quarter, up a mere 1% to 2%.

C. Britt Beemer, chairman of the Charleston, S.C.-based America's Research Group, a consumer behavior strategic marketing firm that surveys 10,000 to 15,000 consumers a week, said the market tumble and sour economy won't change how much Americans buy but how much they are willing to pay for it.

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