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Developments Don't Suggest Holiday Gains for Retail

The news that CIT received some additional financing may be something of a relief, even if that relief may be temporary, but all in all, things aren't shaping up well for retail as the year's second half begins.

Any hope that retail might gain significant strength going into the holiday season seems diminished. How a CIT bankruptcy would effect retail is uncertain, although the company itself has predicted dire consequences while seeking a bailout. Undoubtedly, CIT is deeply rooted in retail as a factor, a company that buys accounts receivable from suppliers who can use the proceeds to fund operations without having to wait for payment to come from their retailer customers. CIT and other factors have sometimes had big effects on the market. In the past, factors have even insisted that retailers such as the now defunct Caldor chain file Chapter 11 in return for renewed financing for their vendor receivables in critical periods such as the holidays. While large, financially solid retailers would be less effected than the smaller and shakier, one major supplier to mass-market retailers contacted pointed out that the company he works for still processes all of its invoices through CIT, even those with Wal-Mart. If CIT drastically scaled back operations -- and it already has pulled back some -- other factors would be hard pressed to pick up the slack, which would force vendors to wait longer for money and make decisions about extending credit at their own risk. So a mechanism that expedites the vendor/retailer interchange could be disrupted going into the holiday period if CIT's situation worsens.

Then there's back to school. The normally optimistic National Retail Federation, in response to a study conducted for it by BIGresearch, is calling for an almost eight percent decline in consume spending on back to school products. Responses indicate that the average family with students in kindergarten through grade 12 will spend $548.72 on school merchandise this year versus $594.24 in 2008.

A whopping 85 percent of consumers have made some spending plan changes for this year's back to school season, with 56 percent hunting for sales more often, 42 percent purchasing more private labels and 40 percent planning more coupon use. Overall, half of consumers plan to reduce spending.

The amount of money spent on students returning to college will be just about flat year over year, reaching $618.12 in 2009 compared with $599.38 in the annum earlier, but with fewer folks planning to attend college right now, overall spending will decline in the return to campus season, NRF predicated.

Almost half, 48 percent, of back to college buyers say the economy will cause them to spend less overall while 46 percent will shop for sales more often and 31 percent will comparison shop with ad circulars/newspapers. The economy will cause 34 percent of students to make do with last year's school items and 17 percent to share or borrow textbooks.

Retailers themselves are making adjustments. In the drug channel, for example, spokespeople from Rite-Aid and Walgreens said those companies are leaning toward stocking lower priced, more basic products rather than elaborate, trendy items for back to school, convinced that consumers are going to be deliberate -- and deliberately tight -- in their spending. CVS, too, is looking to provide consumer with big values. Given that kids have been one group that has prompted spending in the recession, a poor showing for back to school certainly doesn't suggest free spending on toys and video games come the holidays.

In a separate study, Deloitte stated that back to school might be looking up slightly from the year over year perspective. Among respondents to a company survey, 64 percent said they plan to spend less on back to school items, compared with 71 percent in 2008. Yet, contending that represents progress might be a bit of a stretch and falls under the definition established by Home Depot CEO Frank Blake of "less bad," which he distinguishes from truly good news that might signal a rebound instead of a flattening of the economy. Although not all the economic news these days is bad, retail looks to finish 2009 struggling rather than recovering.

Coming tomorrow: Retailers who will gain and lose in back to school and beyond.