On the Economy
Sagging economy hits Seattle retail stars hard
Starbucks, Amazon.com and Nordstrom have released lousy quarterly reports as consumers pullback from their free-spending ways as a result of the credit crisis.
Special to The Seattle Times
Seattle is accustomed to the big international splash of its premier retailers: the gotta-have Starbucks every morning, Amazon.com's breakthrough business model and the cachet of upscale department store Nordstrom.
Lately, however, the splashes have been cold water. Starbucks' fourth-quarter profit tumbled a jaw-dropping 97 percent with its turnaround pronounced complete.
Amazon, although still turning in respectable profits, kicked the market in the gut with a downbeat sales outlook for the holidays.
On Thursday, Nordstrom reported a 57 percent drop in its quarterly profit.
The long and deep Great Disruption is hitting the pillars of Seattle's enviously diverse economy one by one.
First came financial services, especially with the implosion of Washington Mutual. Now comes retailing.
It will prove the most profound challenge yet. Not only do the region's retail headquarters companies provide thousands of well-paying, talent-magnet jobs, but retail employment in Washington totals nearly 332,000.
The state's heavy dependence on sales taxes ensures that a retail slowdown will also hurt funding for public services and investments.
How much will the decline in retail hurt the state? On Thursday, the Washington Revenue Forecast Council said sales-tax receipts and other sources for October were nearly 6 percent below the October 2007 level.
Consumer spending accounts for two-thirds of the U.S. economy and now consumers are saying no.
Confidence is at an all-time low, according to the Conference Board. October retail sales were dismal, with about 60 percent of chain stores failing to meet even scaled-back forecasts, among them Issaquah-based Costco Wholesale.
The causes behind the meltdown are seamlessly connected. The worsening real-estate collapse hasn't just sent millions of people into foreclosure.
Many of the lucky ones are on the brink of mortgage trouble. Millions more homeowners owe more on their loans than the worth of the house.
Hitting Wall Street, the mortgage mess stripped away the value of exotic investment vehicles, many of them outright swindles, driving stocks lower.
Americans have seen their hard-saved 401(k)s and other savings vaporize. Credit seized up for even sound companies and governments. A million jobs have been lost nationwide this year. On top of all this, consumers are tapped out, facing historic credit-card debt.
As consumers cut back, retailers have been among the hardest hit.
Behind high-profile bankruptcy-protection filings, such as Circuit City and Mervyns, some 6,100 stores are expected to close this year nationally, according to the International Council of Shopping Centers.
The industry blog Retail Traffic reports industry insiders worry that number could double in 2009, when most economists say the economy will still be in recession.
Experts haven't yet had data to assess from the upcoming holiday season, when many retailers make the bulk of their revenues.
The downturn promises to be hydra-headed. Besides job cuts and lower tax receipts, it will add to empty space at malls and in shopping districts.
The value of publicly traded real-estate investment trusts (REITs), many of which own shopping centers and other retail properties, has nose-dived this year.
Mall owner General Growth Properties, which owns seven malls in Washington state, including a majority stake in Westlake Center and may sell some properties, warned this week it might be forced to seek bankruptcy-court protection.
Its shares have fallen from $50 to around 40 cents, and it was booted from the Standard & Poor's 500 index this week.
One of the most important retail sectors is auto sales. New-vehicle dealerships brought in $14 billion last year, the Washington State Auto Dealers Association reports.
The typical dealership has 60 employees, making an average of about $50,000 a year plus benefits. In some cities and towns, auto dealers are the backbone of the tax base.
Nationally, with the Big Three tottering and seeking federal assistance, an estimated 600 dealerships might close or consolidate. In Washington, about 39 have shuttered or merged over the past year, according to Bryan Imai, general counsel for the dealers association. The state has approximately 330 new-car dealerships.
We were a little more resilient than the nation, Imai said. But now we're catching up. Still, he emphasized credit is available for buyers, as automakers have put together financing despite the national credit crunch. It's simply not true you can't get financing.
An unpleasant truth is even in affluent, fast-bucks Seattle, people are cutting back. The fallout will go beyond our retail giants to the city's glittering downtown and neighborhoods and towns known for distinctive local shops.
What can be done? In a recession unlike any most of us have seen, the best advice may be the much-derided counsel of President Bush after the Sept. 11 attacks: Go shopping.
Jon Talton: firstname.lastname@example.org
Copyright © 2008 The Seattle Times Company
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