Holiday shoppers turn to cash and layaway

Thanksgiving week normally means two things: an excess of food and an excess of shopping.

This year, the shoppers, at least, are scaling back.

Faced with job worries and credit-card companies that are slashing credit limits and raising interest rates, many have turned to some old strategies. They're using layaway plans, paying with cash, stretching budgets and talking about wants versus needs.

Others say they just can't buy at all.

And they're all scaring the living daylights out of retailers. A major slowdown in holiday spending could spell disaster for some stores. The retail industry, which has already seen several chains go bankrupt and close this year, could see more shops disappear in 2010.

Already, the outlook for the season is less than cheerful. The National Retail Federation is predicting a 1 percent drop in holiday sales this year. That's less than the 3.4 percent drop the industry saw last year, the first-ever decline since it started tracking holiday sales in 1992. But it's still a far cry from 3.4 percent average gain per year over the past decade.

But shoppers say that this year, less is just going to have to be more.

"I just don't know what exactly I'm going to do," said Randford Farmer, who lost his job as a service manager for an apartment complex three weeks ago.

Farmer, 51, of Raleigh, said he has one more check coming from his old job and is not sure yet when he may start getting unemployment benefits.

Despite four grandchildren ages 2 to 6, Christmas may have to be on the back burner this year.

"I always try to get them something they will remember with them being young still," he said. "Grandpa always comes through. But right now I'm just trying to pay the bills."

A swell in poverty

With about 73,000 people unemployed in the Triangle, more people are just scraping to get by. The number of people receiving food stamps in Wake County has gone up by more than 25 percent over the past year. In September, 61,762 people received such aid.

Ali Esmaeily has been looking for a job for 15 months. On Tuesday, his unemployment benefits ran out.

He had been getting by on the $1,100 in benefits he got each month. Now the out-of-work cook said he's not even sure he will be able to keep his Raleigh apartment.

That means gifts this year for his 12 nieces and nephews are just out of the question - unless he is able to find a job soon.

"I haven't slept in 48 hours," said Esmaeily, 41, outside the Employment Security Commission office Wednesday. "As it stands right now, I just can't do Christmas. Maybe next year. They'll understand. They actually try to give their allowances to me."

But part of what is making this holiday so unusual is that it's not just the unemployed who are applying the spending brakes. People with jobs also are cutting back because furloughs and pay cuts have strained household budgets.

Rodney Ellis is budgeting $1,500 to buy gifts for his wife and four children. It's a big drop from the $4,000 he spent last year.

The Winston-Salem eighth-grade teacher is saving up for a potential move to Raleigh next year. He has one daughter in college and one college-bound next year. There's just not as much money, he said.

"My kids don't want little toys anymore," he said. "There's nothing under $100. ... They're not going to get everything they want."

Shunning the credit card

Regardless of how much people are planning to spend, many say they are staying away from their credit cards and opting for cash or debit-card payments.

The shift away from "buy now, pay later" is an unintended consequence of credit-card issuers tightening their lending practices, and one that could cause serious declines for retailers.

Caryn Binn said she is avoiding her credit card at all costs since her interest rate went from 19 percent to 22 percent.

Binn, who works in a veterinary clinic, said she began saving $50 per paycheck earlier this year. She plans to spend about $1,000 this year for the holidays.

"I'm not creating any debt this year," said the 24-year-old, who lives in Raleigh. "I don't want to pay any more interest ... and this way I don't have to worry about paying for it once it's bought."

Thadine Hinton also is trying to avoid credit cards. Hinton lost her job as a home health aide six months ago, and now her family is living on her husband's salary from his job as a cook at N.C. State University.

The Hintons are buying Christmas presents for their children - twin boys who are 2-1/2 years old and a 5-year-old - out of savings. They plan to spend about $600, rather than the $1,500 they spent last year.

This year, there will only be presents for the kids, said James Hinton.

"Our sacrifices are so our kids can have Christmas gifts," he said. "It's for them."

Creative financing

To ensure that their families aren't disappointed, people tend to get creative.

For those who plan ahead, layaway programs at retailers such as Toys R Us, Kmart and Sears have been popular. The Sears at Triangle Town Center, for instance, has 400 orders in its layaway store room.

Greg McBride, senior financial analyst for financial Web site Bankrate.com, expects people to turn to payday lending and pawn shops as well.

An increasing number of people also are turning to area charities to help make Christmas a reality this year.

The Salvation Army has seen requests for holiday toys and clothes through its Angel Tree program rise from 3,700 children in 2007 to 4,500 children last year to a record-setting 5,300 children this year.

"You had mothers and fathers sitting down in front of you saying, 'I've never had to do this before,'" said Paige Bagwell of the Salvation Army of Wake County. "They're not homeless; they're not out of work; they're just the working poor. Their hours may have been cut. Maybe they just don't have the money to pay for Christmas."

A fundamental shift?

Looking beyond this season, the big question for retailers and lenders is whether shoppers are making a permanent and fundamental shift away from credit cards.

In a survey this month by the National Foundation for Credit Counseling, 77 percent of shoppers said that if they received $500 dollars they were not expecting, they would use it to pay down debt. Only 7 percent said they'd use it for holiday gifts.

"That's the paradox of thrift," said McBride. "We are better off as an economy in the long run if consumers have less debt and more savings. But it results in an extremely painful transition in the interim, and that's where we are now."

Credit-card companies may take three to five years before they relax their new stringent lending practices, McBride said. But when they do, shoppers may return to their old habits.

"I'm not convinced this is going to last forever," McBride said. "People have short memories."

Still, the fundamental way people are shopping may have changed, said Britt Beemer, retail analyst and founder of America's Research Group in Charleston, S.C. Shoppers are much more deal-oriented, and much more willing to leave the store without buying anything if the deal they wanted is out of stock.

"Last year, we saw a new phenomenon in this country," he said. "Eighty percent of consumers went into stores [on Black Friday] and primarily bought the specials. And only 50 percent of those considered buying anything else. That figure is 75 to 80 percent usually. ... The consumer really does control their destiny."