Santa Claus may be hard at work as the holidays approach, but he will find many Americans struggling with a troubled economy. A CNN Poll On Holiday Shopping is an indication of what many of us suspect: This will be the worst Christmas shopping season on record. Let’s take a look.

CNN Shopping Poll

Slow Sales And Layoffs

Here for the holidays: Slow sales and layoffs

What’s going well for small businesses? Not much, according to The National Federation of Independent Business’ monthly Small Business Optimism Index, which fell 5.4 points in October and landed at the third-lowest reading in the history of the survey.

“We’re mired in a recession,” said the NFIB’s chief economist, Bill Dunkelberg. “Small business sales will be weak in fourth quarter, which may mean a negative Christmas,” said Dunkelberg. “And that may spill over to the first quarter of 2009.”

Only 5% of respondents think now is a good time to expand their facilities, the lowest reading since 1982 and the second lowest in the survey’s 35-year history. The net percentage of owners reporting higher sales in the past three months fell to the worst reading the survey has ever recorded. Overall, 37% reported sales lower than they had three months ago, and 41% said their earnings have declined.

The employment picture was also grim. The average employment per firm dropped by .41 workers, and almost twice as many businesses reporting cutting employees as hiring them.

“When you hear about the layoffs, small businesses are the big picture,” Dunkelberg said. “We hear about mass layoffs, but really the layoff of .41 employees per firm is a very big decline because small businesses employ so many.” Small businesses with 500 or fewer workers employ about half of all private-sector workers, according to data gathered by the Small Business Administration.

Fewer gift cards this holiday season

On October 21, speculating about the bankruptcy of Circuit City, I offered these Circuit City Inspired Christmas Shopping Tips.

Shopping Tips

A big fancy fruit basket and items from food specialty stores may look practical but they are not. The markup on those things is astronomical. If you want to give someone a fruit basket, make it yourself. You can usually find an inexpensive basket to start from at a place like Hobby Lobby.

Many people are going to lose their jobs in 2009. I suspect those who are about to lose their job as well as those already out of a job will appreciate a gift card at a grocery store far more than a gift card at a knickknack store. Actually I do not like gift cards at all but most do. One advantage of a gift card is ability to take advantage of after Christmas sales.

Regardless of where you shop, my advice is to shop less and save more. Your job may be in jeopardy and you might not even know it. Frugality is the new reality for consumers and businesses alike.

A penny saved is a penny got. That penny is likely to be worth more tomorrow than it is today. It is one of the consequences of the deflationary times we are in.

Fewer gift cards this holiday season

Circuit City did go bankrupt and in its demise, a Retail Tsunami Hit Gift Cards.

The National Retail Federation reports shoppers will give fewer gift certificates this season and head to the sale rack instead.

Gift card sales will fall almost 6% this holiday season to $24.9 billion, down from $26.3 billion last year, according to the National Retail Federation’s sixth annual Gift Card Survey, conducted by BIGresearch.

Fewer shoppers plan to purchase gift cards this year – 53.5% compared with 56.6% in 2007. And if they do purchase gift cards, shoppers are going to put less cash on them, according to the survey. The average amount that shoppers plan to spend on gift cards in 2008 fell to $147.33 from $156.24 in 2007.

“Since gift cards never go on sale, some price-conscious shoppers will be passing up gift cards in favor of holiday bargains,” said NRF President and CEO Tracy Mullin in a written statement.

More Scrooge Than Santa

CNN is reporting Spending expected to be more Scrooge than Santa this year.

Black-Belt Shopping Strategies

Oprah Winfrey offers 10 Black-Belt Shopping Strategies. In contrast, I offer two.

1) Don’t buy what you cannot afford.
2) Don’t buy what you can afford.

Let’s take a look at a few retailers and see how they are doing. Click on any chart in this set to see a sharper image.

Target (TGT) Weekly Chart

Hott Topic (HOTT) Weekly Chart

Abercrombie & Fitch (ANF) Weekly

Macy’s Inc (M) Weekly

Wal-Mart (WMT) Weekly

With the exception of Wal-Mart, the carnage in this sector is almost unbelievable. Competition for customers is more intense than ever, and competing for customers means competing with Wal-Mart. The charts suggest Wal-Mart is winning.

Servicing Debt Is Key To Survival

It is a mistake to look at PE ratios alone to find bargains. Macy’s has a lower forward PE than Abercrombie & Fitch. But Macy’s also has $9.8 billion in debt vs. $100 million at Abercrombie. The debt to equity ratios are 1.02 vs. .056 respectively.

In an environment of rising unemployment, shrinking demand, and huge overcapacity, stores have no choice other than lower prices. Looking ahead, consumer frugality is going to be the new model. And the key to survival is the ability to service (and roll over) debt. Please keep that in mind when looking for bargains.

Mike “Mish” Shedlock
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