Housing slump, fuel costs weigh on consumers

Consumers tend to change their spending habits slowly when economic conditions change, Weagley said.

“Psychologically, it takes us a while to make the decision to make an adjustment, and once we make the decision it takes us a while to implement the adjustment,” he said.

“A lot of people like me have an old gas-guzzling Ford Explorer, but they keep driving it because it’s paid for,” Weagley said. To compensate, consumers nibble around the edges, making fewer trips to Wal-Mart and compiling a list before they go, he said.

That’s been the case at the eight Wal-Mart stores managed by Cindy Galati in suburban St. Louis.

Galati said customers have been ringing up bigger purchases, indicating they are bundling more shopping into each trip. That’s not necessarily bad news. Galati said Wal-Mart’s low-price focus puts it in a strong position to capitalize on bargain shoppers.

“It’s going to be the day-in and day-out staple items that we know our customer is going to need,” Galati said. “That’s how we’re going to drive sales through the quarter.”

Wal-Mart Stores Inc. reported its first quarterly profit decline in a decade this month. Much of the loss came from costs associated with closing operations in Germany. But Chief Executive Lee Scott said disappointing sales were partly due to customers cutting back because of higher energy prices.

“Customers tell us they are most concerned about gas prices,” Scott said in a message for investors. “This has been consistent every month this quarter.”

While midpoint and discount chains are feeling the pinch, luxury retailers continue to outperform them, according to the International Council of Shopping Centers’ monthly surveys of about 60 retail chains.

Business is booming at nine high-end shopping centers owned by Evanston, Ill.-based Davis Street Land Company, said managing partner Bob Perlmutter.

Tightening their Hermes belts
Luxury outlets like Tiffany & Co. and LVMH Moet Hennessy Louis Vuitton SA are expanding in wealthy neighborhoods like Belle Mead in Nashville, where residents are less affected by higher gas prices, he said.

Still, some of the well-heeled are tightening their belts.

“Compared to a few months ago, I’m spending less,” said Niria Arvizu, an attorney who was recently shopping at a mall in downtown Los Angeles.

The 29-year-old from Marina Del Rey is saving money to buy a condo and a new car. She said she used to spend $500 to $600 a month on clothes and shoes. Now she spends about $200.

“I’m saving on luxury items, like clothes, dinners, going out,” she said. “I go to the grocery store more, and bring my lunch to work everyday.”

Overall, shoppers are likely to bargain hunt and put more of their income into savings accounts later this year as the housing market continues to weaken, said Stuart Hoffman, chief economist at PNC Financial Services Group.

Beyond the psychological impact, lower home values cut into consumers’ ability to borrow money, Hoffman said. Since the real estate boom started, homeowners borrowed against the increased value of their houses.

Losing that borrowing power could take tens of billions of dollars out of the U.S. economy this year, although that remains a tiny fraction of overall spending, Hoffman said. The shift is likely to have the biggest effect on home improvement retailers, as people scale back investment in their houses, he said.

That’s not news for David Richardson, the 50-year-old co-owner of Rothschild’s Antiques and Home Furnishings in St. Louis. After two strong years of sales, business has slowed dramatically this summer.

“Look around,” Richardson said, gesturing to an empty store. “I’m scared. I don’t know what’s the right thing to do. Do you stand by the tried and true, or do you move on?”

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