Thursday, December 25, 2008
Catherine Wilson, Bureau Chief
Let the Buyer Beware
It’s official, our country is in a recession. Politician have stopped tap-dancing around the situation, trying to convince taxpayers that we’re simply experiencing an economic “downturn”. The economy is headed south at a rate surpassing that expected by economists. According to the Bureau of Labor Statistics, there are now 10.7 million unemployment workers in the United States, an increase of over 500,000 in November alone.
The national unemployment rate is now 6.7%, with New York State at 5.7% and Westchester County even lower at 4.6%. But rates alone do
not tell the human story. In October, 2007, Westchester had 17,100 unemployed individuals; in October, 2008, that number jumped by 7,300 to 24,400. As more local residents see their neighbors being laid off, they have been cutting back spending out of fear for their own jobs.
That fear is evident in local stores where shoppers are scarce and parking spaces abundant during this holiday season; a time when stores traditionally turn a profit. Retail businesses make most of their profits for the year beginning with the day after Thanksgiving, known as Black Friday, up through Christmas Eve. The holiday season is critical to their survival. This year, based upon poor early sales for the season, many stores have cut back on staff; others are offering drastic discounts and sales, and still others have filed for bankruptcy,
placing shoppers in peril.
When a store declares bankruptcy, shoppers are often left holding the bag on deliveries, repairs, warranties, and unused gift cards. According to Robert Salomon, Associate Professor of Management at New York University, with respect to major retail outlets, “The bankruptcy pace
has quickened since August. In fact, since mid-August, bankruptcies have been averaging about 21 per month”.
Many of those bankruptcies are for popular holiday shopping such as KB Toys which filed a Chapter 11 petition as recently as December 11th. Other local retailers on the latest bankruptcy lists include:
Linens & Things
Steve & Barry’s
Filing a Chapter 11 petition does not necessarily mean that the company will close its stores. The impact of the filing is that it provides
a method and time for the company to pay off its creditors. However, a store in Chapter 11 proceedings does not have to honor its gift cards
according to Federal law, although many choose to continue to do so.
Some stores opt for suspending redeeming gift cards for a period of time. As many financial experts are warning, this season is not the time
to be giving gift cards as holiday presents. With respect to gift cards, consumer advocates are warning, “When an economy goes south, as it
is doing now, you’re lending money to people who may have trouble repaying it”. So far this year it is estimated that consumers have lost approximately $85 million in gift card values to bankruptcies. But, while financial experts advise against buying gift cards, most consumers love them, spending approximately $24.7 billion on them each year.
Even if a company is not in Chapter 11 proceedings, many retailers are choosing to resolve their economic problems by closing down unprofitable stores. This could mean that a gift card recipient might find that there are no longer any branches of a particular store, locally, in which to spend their gift.
Companies that have recently announced store closings include:
• Ann Taylor: Including LOFT and outlet stores.
• Bombay Company
• Circuit City: Closing 155 stores in addition to filing for Chapter 11.
• Dillard’s Department Stores
• Disney Stores: Closing 98 stores nationwide.
• Eddie Bauer: Closing retail design centers.
• Foot Locker
• Whitehall Jewelers: Closing all remaining 373 stores.
• Gap (including Old Navy, Banana Republic: Closing 115 stores, opening 100 others.
• Hollywood Video: Closing 520 stores and filing for Chapter 11.
• Home Depot: Closing 15 outlets.
• KB Toys: Closing all 375 stores.
• Kirkland’s Home Décor: Closing 130 outlets.
• Levitz Furniture: Closing all stores.
• Macy’s: Closing 11 stores.
• Pacific Sunwear: Closing 154 of its “d.e.m.o.” brand stores.
• Sharper Image: Closed all 184 stores.
• Sprint: Closing 125 stores.
• Talbot’s: Closed 28 stores, selling J.Jill stores.
• Wickes Furniture: Closing all operations.
• Zale’s: Closed 105 stores, opened 100 others.
Companies traditionally close down low-performing stores in the normal course of business (Gap, Talbot’s, Zale’s). However, if only one of those stores exist in the area, closing it down causes a hardship for local shoppers and gift card holders, for example, when J.C. Penney’s and CompUSA left White Plains. Holiday shoppers, on top of their economic worries, now have to consider if a store will still be in business in 2009 before making any purchases.
But holiday shopping worries do not end there. Credit card companies have also entered the fray. In October, both Visa and MasterCard announced rate hikes to merchants who accept their cards. These increases will either have to be absorbed by the stores, or passed along to consumers. Some local gas stations this past summer stopped accepting credit cards altogether since the rate they had to pay per transaction was more than their profit margin on the gasoline they sold, causing them to operate at a loss. Citibank recently announced that it is raising rates for some individual cardholders by 2 to 3 percentage points. American Express and Chase are following suit. That means anyone with an outstanding balance on their credit cards will now have to pay a higher minimum amount each month.
According to Ben Woolsey, Director of Marketing and Consumer Research at CreditCards.com, “About 60 percent of cardholders don’t pay off their balances each month”. Those consumers could be in for a nasty surprise when their holiday shopping bills arrive in January.
The federal government has already recognized this problem and is taking steps to protect citizens from the credit card companies actions.
Representative Carolyn Maloney (Democrat) from Manhattan and Queens is Vice-Chairman of the Congressional Joint Economic Committee and has sponsored a bill that requires credit card companies to provide 45 days’ notice of interest rate increases, prohibit the companies
from changing the terms of the contract at any time for any reason, and makes the credit card issuers mail billing statements 25 days before
the due date, instead of the current 14-day minimum.
According to Rep. Maloney, “Consumer credit-card debt is nearing the $1 trillion mark, which is double the amount held in 1996. More and more Americans are turning to their credit cards to help pay bills, buy groceries, and make ends meet in this troubled economy”. The Consumer Federation of America notes that delinquencies in credit card payments were steadily increasing due to high gas prices, the erosion of home equity as a payment method, and other increased utility costs, but that credit card companies continue to reap strong profits even in the face of general economic downturn.
So what’s a local shopper to do this holiday season?
1. Shop with a list and a budget and stick to it. Last-minute impulse buys wreak havoc with budgets and credit card balances. Shoppers could
end up paying for that “bargain” for all of 2009, and beyond.
2. If you must shop this season using your credit cards, know exactly how much credit you have on each card and how much is left. Credit card companies often do not prevent you from using their card when you’re over the limit; they’ll just tack on a hefty fee to your next statement instead. If you already carry high balances on your cards, use cash only for your holiday shopping. That “bargain” large-screen television or computer could cost hundreds more when months of interest and fees are added.
3. Again, If you must shop with a credit card, use only one card and resist the temptation to open a store card to obtain a one-day discount. Using one card makes it easier to keep track of credit limits and balances. A new store card provides too much temptation to “max out” the discount; you may get $20 off on the spot on the item you were buying, but if you then spend $40 more in the store with the “discount” on items you did not go out to buy, and probably don’t really need, you’ve saved nothing.
4. Keep your credit card chits/ receipts. Set them aside and compare them to the bill when it arrives. Mistakes do happen. Plus having receipts on hand will make it easier to spot any fraudulent charges on your account.
5. Do not use your credit card for food court purchases at the mall. Any “savings” you get from in-store sales evaporate once you step into the food court. Using cash makes the cost of the junk food at the food court more apparent. And you won’t end up paying interest on a credit card balance in 2009 for that hot dog from Nathan’s!
6. Shop alone. Bringing kids, spouses, and friends, only increases the time spent at the mall and the likelihood that you’ll spend more money. Go with a list and go it alone. Think of it as a chore; aim to “get in and get out”, period. If you must bring a buddy, bring your accountant!
7. Shop locally. There’s far less temptation in one store than in a huge mall. There’s also less aggravation, no crowds; friendlier, more knowledgeable staff, and fewer parking hassles. Local towns, such as Pleasantville, are offering free parking during the holiday shopping season. Plus, the more money local stores make, the more sales tax dollars for the community, relieving some of the need for raising property taxes. And, it keeps our neighbors employed, and local teenagers occupied, to boot.
8. Be patriotic. Check where a product is made and try to buy American when possible; buying New York products is even better. Why buy that bottle of French wine when a nice bottle from the Finger Lakes will be just as appreciated? Books are also a great purchase for anyone on your shopping list and New York is the nation’s publishing capitol. Books are seldom produced overseas due to difficulties in translations.
9. Get as close as possible to the stars. The County is fortunate to have many local theaters and performing arts centers with a wealth of talent, at far below Broadway prices, for the theater lovers on your list.
Among them are:
Emelin Theater in Mamaroneck
Performing Arts Center at SUNY Purchase
Tarrytown Music Hall in Tarrytown
Fleetwood Stage in New Rochelle
Jacob Burns Center in Pleasantville
Paramount Center for the Arts in Peekskill
Westchester Broadway Theater in Elmsford
White Plains Performing Arts Center
10. Be charitable. Local nonprofits are struggling in this economy. The demand for their services is rising at a time when their donations and grants are falling. Make a donation in a loved one’s name or purchase items from the agency directly. UNICEF USA sells holiday cards both online and in Barnes & Noble stores locally. United Way is a good source for local non-profits. They can be reached at www.uwwp.org.
11. Get crafty. Many local artisans offer classes in cooking, pottery, music, and the arts. Instead of expensive presents, what about a friends’ night out at a cooking class? Chef Central on Central Park Avenue in Hartsdale offers several classes monthly for all age groups and abilities.
12. Be a sport. Take a group of friends to experience a new sport. The Ardsley curling club offers lessons to those interested in what the Canadians get so riled up about besides hockey. Curling is similar to shuffleboard, on ice. Or go rock climbing at The Cliffs in Valhalla.
13. Shake it up. Take the girlfriends to a belly dancing class at Josie’s International School of Dance in Ossining. Grab the spouse and the neighbors for tango lessons at most local community centers. And lastly, Be a Scrooge. Sometimes the best gift is no gift at all. I’ve asked my two teenagers to “spend a day in the city” with me this winter break as my present. Since my son is now a college freshman, and my daughter is involved in high school activities, my time with them is limited. I don’t want more slippers or CD’s, especially not when I can raid their iPods! I want the gift of a memory. Preferably one that “maxes out” and generates lots of “interest”!