Frustration At The Mall

Can't blame the consumers. The rules changed, and so did their behavior.:

After a year of economic crisis and an even longer slump, the nation's retailers are facing a consumer who's more reluctant to buy than ever before in modern times. All signs point to a new era of frugality.

Whether it's because of job losses, uncertainty about employment, banks tightening lending, high debt or eroding income, the U.S. consumer is tightening her belt and doing without.

That's a big problem for the U.S. economy. Consumers in recent years have accounted for about 70 percent of American economic activity, so their reluctance or inability to spend matters. With the jobless rate at 9.7 percent and expected to keep rising for months, consumers are likely to remain hunkered down.

Federal Reserve data released Tuesday showed that consumers cut borrowing in July by an annualized 10.4 percent. The dollar amount of the decline, $21.6 billion, was the largest month-over-month decline on record.

A lack of borrowing translates to a lack of spending.

"Consumers continue to be incredibly cautious," said Scott Krugman, a spokesman for the National Retail Federation, which represents nationally known retailers.

Sales at stores open for more than a year posted a 2.9 percent drop in August. That's not as bad as July's 5.1 percent decrease and was smaller than expected, but it was still a drop. Moreover, any improvement in retail sales reflects only statistical growth from a deep bottom.

Adding to retailers' woes, the government's "cash for clunkers" program helped spur car sales, but maybe at the expense of other spending.

"Consumers that a year ago, or even six months ago, might not have expected to have a car payment now do. Naturally that money was going to have to come from somewhere: It came from their discretionary spending," Krugman said, noting that "cash for clunkers" purchases ate into other summer retail sales. "That's not the sole reason. Obviously it was going to be a challenging back-to-school season" anyway.

Having tried steep discounting, retailers are still searching for a formula to get consumers spending again. They fear that people will spend only for bargains.

"The biggest change is that consumers are now firmly in the driver's seat. For over a decade they spent relatively freely. Not anymore," said Ted Hurlbut, a Boston-based retail consultant. "They have become far more cautious, and their emphasis on intrinsic value is now far more than a rational response to economic realities. It's become a cultural virtue."

...Meanwhile, some analysts hold out hope that the new frugality may wane as the economy improves.

"A lot of that was said after 9-11 as well. The consumer is resilient," said Krugman, the spokesman for the National Retail Federation. "Once the economy starts improving, you're going to see a ripple effect. I think the consumer believes the economy is improving. They just need a little more proof and it needs to hit closer to home before they loosen the purse strings."