What's A Retailer To Do?

For American retailers, the bad news just kept coming this week. Circuit City joined the growing list of chain stores filing for bankruptcy. Best Buy warned of what it called "seismic changes" in consumer spending habits. And yesterday the commerce department said retail sales fell at a record 2.8 percent in October. The downturn is already forcing many stores to mark down what they sell.

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LYNN NEARY, host:

For American retailers, the bad news just kept coming this week. Circuit City joined the growing list of chain stores filing for bankruptcy. Best Buy warned of what it called "seismic changes" in consumer spending habits. And yesterday, the Commerce Department said retail sales fell at a record 2.8 percent in October. The downturn is already forcing many stores to mark down what they sell. NPR's Jim Zarroli reports.

Unidentified Man #1: When you guys finish there, I want to do a walkthrough outside all the windows, please.

Unidentified Man #2: OK, Mani(ph).

JIM ZARROLI: At Lord & Taylor on Manhattan's Fifth Avenue, workers are getting ready for the holidays, setting up the toy train and the twirling jack-in-the-box in the window display. A lot of shoppers mill around to watch them work, but Roz Fallick(ph), who's waiting for a friend outside the store, says the crowds this year are thinner than usual. Fallick says she understands why. She's retired and she lost money in the markets recently, so she isn't buying as much this year as she used to.

Ms. ROZ FALLICK: I might have been a little bit more carefree about it. But now I just don't feel I can afford to be thoughtless about just buying everything and anything I see.

ZARROLI: Those are words that send shivers down the spines of big retailers. Big chains like Abercrombie & Fitch, Nordstrom, and JCPenney have all reported sharply lower profits during the third quarter. Retail consultant Howard Davidowitz says consumers are so loaded down with debt and so worried about the economy that they've sharply cut back on spending.

Mr. HOWARD DAVIDOWITZ (Chairman, Davidowitz and Associates, Inc): We're in a crisis of unbelievable proportions, and the consumer is at the center of it.

ZARROLI: As a result, he says, chains like Linens-N-Things and Mrs. Fields Cookies have declared bankruptcy, and others, like Value City, have liquidated.

Mr. DAVIDOWITZ: It's all terrible. We're going to close next year twelve, thirteen thousand stores. We're going to close over a thousand auto dealerships next year alone.

ZARROLI: Even the strongest retail chains are under considerable pressure. This week, the chief financial officer of Macy's, Karen Hoguet, told investors this is the most challenging business environment she'd ever seen. Hoguet said the company is doing what it can to keep its merchandise moving.

Ms. KAREN HOGUET (Chief Financial Officer, Macy's, Inc.): Needless to say, we are taking more markdowns than we had planned to keep our inventory current.

ZARROLI: At Lord & Taylor, a lot of items are already discounted. And Ruth and Arnot Drucker(ph), who are visiting New York from Baltimore, say they were handed cards good for an additional 15 percent off any item just for walking in the door.

Mr. ARNOT DRUCKER: The coupon's for everything - cashmere sweaters we were looking at. It looks like men's sweaters...

ZARROLI: Is it good stuff? I mean, does your...

Ms. RUTH DRUCKER: Beautiful stuff. Really fine stuff.

Mr. DRUCKER: You're getting the best bargain in New York.

ZARROLI: Retailers are hoping that by offering discounts like these, they can lure customers back into their stores. But with unemployment rising every month and stock prices tanking, discounts alone won't be enough to save the shopping season. Jim Zarroli, NPR News, New York.

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Retail Sales Drop Record 2.8 Percent In October

U.S. retailers saw a record drop in sales in October, the Commerce Department said Friday, as tighter credit and the faltering economy spooked consumers into sharp cutbacks in their spending.

Retail sales fell by 2.8 percent last month, led by a huge drop in auto sales. It was the largest decline since the index began in 1992. The previous record was a 2.65 percent drop in November 2001.

In September, sales fell by a revised 1.3 percent, a figure that was previously reported as a 1.2 percent decrease.

The weakness was led by a 5.5 percent plunge in auto sales, with carmakers reporting unit sales falling to their lowest level in 17 years. Excluding autos, retail sales fell 2.2 percent, also a record decline.

The report shows that sales at general merchandise stores such as Wal-Mart fell 0.4 percent, while sales at specialty clothing stores were down 1.4 percent. Sales at furniture stores dropped by 2.5 percent, with sales at appliance stores and sporting goods stores also showing declines.

Consumer spending accounts for two-thirds of total economic activity. The gross domestic product fell 0.3 percent at an annual rate during the third quarter, the strongest signal yet that the country has fallen into a recession.

Many economists believe the GDP will drop by an even bigger amount in the current October-December period and will continue falling through the first two quarters of next year, likely sparking the worst recession since the 1981-1982 downturn.

The government reported last week that the unemployment rate shot up to 6.5 percent in October, and many economists believe it will top 8 percent before the economy starts to mount a sustained rebound.

From wire service reports

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