Fiscal cliff spooks U.S. shoppers in last lap of holiday race

NEW YORK/WESTBURY, New York Sat Dec 22, 2012 10:29pm IST

Clients wait in line to shop for food at the St. Vincent de Paul food pantry in Indianapolis, Indiana, November 27, 2012. REUTERS/Aaron P. Bernstein

Clients wait in line to shop for food at the St. Vincent de Paul food pantry in Indianapolis, Indiana, November 27, 2012.

Credit: Reuters/Aaron P. Bernstein

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NEW YORK/WESTBURY, New York (Reuters) - Fears about imminent tax hikes and cuts in government spending are taking a toll on U.S. shoppers and could deprive retailers of a strong finish to the 2012 holiday shopping season.

The acrimonious debate in Washington over how to avoid the so-called "fiscal cliff" has cast a pall over shopper sentiment as consumers head to malls on the last Saturday before Christmas - typically one of the busiest shopping days of the year.

Talks to avoid the fiscal cliff stalled on Thursday when Republican lawmakers rejected House Speaker John Boehner's proposal aimed at winning concessions from President Barack Obama.

"I don't think we're going to get a great pickup in the last few days here," said Ron Friedman, retail practice leader at consulting firm Marcum LLP, explaining how the uncertainty related to the "cliff" was weighing on American minds.

About 17 percent of the 1,514 Americans who participated in a Reuters/Ipsos poll conducted December 17-20 said the impending "fiscal cliff" was making them spend less this season.

"We just try to stay on a budget. We're not going crazy," said Tom Chowinski, a market researcher at Nielsen, who was shopping with his wife for their four adult children on Saturday morning at a Wal-Mart store in Westbury, New York.

Chowinski did not completely understand the details of the looming fiscal cliff, but said seeing the debate's impact on the stock market gave him pause. Still, he is spending as much as last year.

Some shoppers, like Carmen De Jesus, 45, a home nurse living in New York, were more cautious.

De Jesus said she is spending less than last year, buying gifts only for her closest kin, and nothing for herself.

"I don't need it," De Jesus said at a TJ Maxx store on Saturday morning. "The economy is not good." TJ Maxx is a unit of TJX Cos.

U.S. consumer sentiment also plummeted in December as Americans were unnerved by ongoing negotiations, data showed.

The Thomson Reuters/University of Michigan's final reading on the overall index on consumer sentiment tumbled to 72.9 from 82.7 in November, worse than forecasts for 74.7. It was the lowest level since July.

HO-HUM CHRISTMAS

"What could have been a merry Christmas is going to turn to a ho-hum Christmas, and we can thank our, you know, politicians for getting in the middle of it all," NPD analyst Marshal Cohen said. "This great unknown puts a big damper on the consumer feeling confident to go out and spend more."

More than 60 percent of U.S. consumers have already finished more than three-quarters of their holiday shopping, according to a Reuters/Ipsos poll released on Thursday. This means retailers will have to offer deeper discounts to force Americans to open their wallets in the last lap of the holiday race.

The holiday quarter can account for about 30 percent of annual sales and half of profit for many chains, and experts including Cohen and Friedman see retailers pulling out all the stops this weekend to woo last-minute shoppers.

"The only way retailers now are going to be able to get a boost is by creating their own stimulus package, and that stimulus package is going to be markdowns," Cohen said.

This week, research firm ShopperTrak lowered its sales forecast for November and December and now expects sales to be up 2.5 percent, rather than up 3.3 percent.

Many retailers reported record traffic on Thanksgiving Day and the subsequent weekend, but several, including Macy's Inc and Saks Inc, lost a lot of business in early November because of Superstorm Sandy.

Redbook Research said chain-store same-store sales rose 2.2 percent so far in December, suggesting shoppers are indeed cooling their heels.

Sales for the November-December holiday season look set to rise 4.1 percent to $586.1 billion this year after a 5.6 percent increase in 2011, according to the National Retail Federation.

"Retailers are going to be pretty challenged this year in trying to get beyond all this," Cohen said, referring to a string of events this holiday season that have weighed on U.S. shoppers including the hurricane, gridlock in Washington and the recent shooting at an elementary school in Connecticut.

NRF sees 2013 retail sales rising about 2 to 2.5 percent if the fiscal cliff is averted. If not, sales would be essentially flat for the year, the trade group estimated in a study with Macroeconomic Advisers.

(Editing by Matthew Lewis and Nick Zieminski)

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