Faced with a wheezing economy that can't seem to heal, big U.S. retailers like Target Corp. (NYSE: TGT) and Office Depot Inc. (NYSE: ODP) are creating their own stimulus measures to lure hesitant shoppers back into stores.
Through such tactics as loan programs, credit card rebates and gift card giveaways, top retail chains are rolling out promotional strategies, hoping to break consumers out of their anti-spending doldrums.
"A lot of the government programs have come to an end," David Bassuk, an expert from financial consultancy AlixPartners, told The New York Times. "So retailers are taking it upon themselves to do everything they can to get the consumer to spend, even opening up their wallets to give money back to the consumer."
Sam's Club is taking an unusual approach: It's offering loans of $5,000 to $25,000 to its members, backed by the Small Business Administration. Superior Financial Group is managing the loans and will give Sam's members a $100 discount on the loan application fee and lower interest rates.
"We're not necessarily trying to be a bank," Catherine Corley, vice president for member services at Sam's, told The Times. "We're just trying to bring to [our customers], much as we do with products, the things they need."
Staples Inc (Nasdaq: SPLS) is also aiming to give customers what they need: spending power. When shoppers buy a backpack during back-to-school shopping, Staples will give them a gift card worth as much as the backpack's price.
"On that particular one we probably don't make money, but in general what we're hoping to do is get customers into our stores, and then buy everything else they need." Demos Parneros, Staples' president of U.S. stores, told The Times.
Lately there's been a lot of cause for consumer caution. A weak unemployment report released Friday showed that the private sector only grew by 83,000 jobs, and 652,000 discouraged job seekers gave up their search for work – which means they'll be living on super-strict budgets.
Other still-employed consumers have disposable cash – but are afraid to part with it. Personal income has risen for three straight months and savings rates are high, meaning some people and businesses are sitting on cash piles as a safety measure.
If this retailing reticence continues, it could have major implications for the broader economy, which depends on consumer spending for 70% of its growth. In the meantime, however, it's the retail sector that's feeling the biggest squeeze.
While the promotions aren't necessarily moneymakers, they are intended to relax customers into spending more freely – and hopefully direct the spending at that store. A Sam's Club survey showed that small-business customers felt they just didn't have the money to be shopping like they wanted to.
But retailers run the risk of creating programs that shoppers can take advantage of without spending more than they normally would, defeating the promotion's purpose and leaving the retail sector struggling.
The next retail sales numbers will be released July 14, showing whether or not promotional strategies that stores have already launched are doing their job.
"June needs to rebound to show fledgling consumer spending recovery is on track," said Ken Perkins of Retail Metrics.
That brings us to next week's Money Morning Question of the Week: Are these new retailer-created discounts and promotions grabbing your attention? Will they induce you to spend more? Do you think there are incredible opportunities for shoppers right now, or are stores trying to push sales that consumers simply can't afford? Lastly, if these measures aren't working, is there something that retailers could do that would induce you to buy? What would that be?
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News and Related Story Links:
- The New York Times:
Retailers Devise Novel Ways to Revive Sales
- Money Morning:
Unemployment Report Shows Sluggish Recovery Will Take Years to Replace Jobs Lost in Great Recession
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- Money Morning News Archive:
Question of the Week Feature