Holiday shopping: 'The sleigh ride might be a little bit bumpier'

Taking a break from shopping, Karen Kola, left, and her mother, Barbara Morris, said they will be able to buy only a few Christmas gifts this year. (Delores Johnson photos | The Virginian-Pilot)

By Carolyn Shapiro
The Virginian-Pilot

After Christmas 2005, Chris and Jennifer Felan faced a mound of credit card bills and had to use their tax refund for that year to pay them off.

"I never felt like we were getting ahead," said Jennifer Felan, 31. "It was just a weird little cycle, where we had this extra money but we weren't able to do anything productive with it."

So the Norfolk couple decided to start saving early this year, aiming to ease off the plastic and avoid debt. They now have more than $1,000 in their Christmas account to spend on themselves and their daughters, 11-year-old Madison and 8-year-old Meghan.

They are considering a laptop for Madison, electric scooters for both girls and maybe a Nintendo Wii video game system for the family. Plus, they think they'll have enough to take a trip.

"This year, we have a little bit more money," said Chris Felan, 38, carrying a stuffed JC Penney bag last week as he shopped with his family at The Gallery at Military Circle. "There's no stress."

The Felans belie the outlook of economists and retail industry observers who foresee a lackluster 2007 holiday shopping season. Those experts expect that sales in November and December will climb at a more shallow rate than in recent years - about 4 percent, according to forecasts covering the broadest group of retailers from the International Council of Shopping Centers and National Retail Federation.

Weary consumers have watched housing sales slump, gas prices climb, the financial sector weaken, the dollar's value slide and recession loom. Looking at that landscape, some shoppers see reason to scale back their spending.

"The budget's the same. Quantity might not be," Jerry Barnes Jr., 35, a lieutenant for the Chesapeake Fire

Department, said of his holiday purchases. With sons ages 2 months and 3 years at home in Virginia Beach, his family goes through about two gallons of milk per week, costing close to $8 with prices these days.

Barnes' health insurance covered all but $100 of the medical cost for their first child but left him with a $500 bill for the second baby. He's paying a higher premium, too.

Of 16 consumers interviewed last week - some while buying holiday gifts - most said they consider themselves as financially stable this year as in the past and will spend as much or more on the holidays. Still, all acknowledged that many costs have jumped.

Most Virginians, for instance, are spending twice as much of their household income on gas as they did five years ago, the Oil Price Information Service reported last week. On average, a state resident spends 4.4 percent of his or her income on gas per vehicle, compared to 2.2 percent in 2002, the report showed.

"The economy's a little tighter. We're spending more on gas," said Ted Harrison, 36, a Navy independent duty corpsman. He and his wife, Gina, who live in Suffolk, set a holiday gift budget of $500, about the same as last year, for their two children and other family members. He earns a steady income, he said, "but the cost of everything today is ridiculous."

Other Hampton Roads residents reflect the struggles of many across the nation, coping with high living costs that leave little for holiday splurges. "I'm just trying to pay the bills," said Karen Kola, 37. "Rent goes up. Heating is up."

The single mother of three said her home day-care business in Norfolk has declined this year because of competition in the region. Kola has no health insurance, though her children - ages 16, 11 and 2 - are covered by Medicaid, she said.

"Nobody's getting anything but my three kids," she said of her holiday spending. "Usually, my den is full of toys" for the children in her care, plus expensive items such as PlayStation and Nintendo DS video game systems for her family. "This year, you'll be lucky if you get $100 a piece from me."

She knows others in similar situations. "People just keeping their heads above water. People working more, they're making less, not having money to do what they want to do."

Retail industry experts look at two indicators to assess the likelihood of consumer spending: the ability to buy and the willingness to buy. The ability to buy lies with consumers' income levels and growth; willingness has to do with their confidence.

Chris and Jennifer Felan began saving early and now have more than $1,000 to spend on themselves and their daughters Madison, 11, left, and Meghan, 8. With the cushion, “there’s no stress,” Chris said as the family shopped at The Gallery at Military Circle.

"People have gotten worried about gas prices and about the outlook for next year and about how much the crisis in housing might carry over into the rest of the economy," said Roy Pearson, a retired business professor who still teaches forecasting at the College of William and Mary in Williamsburg. "The more they hear about the possibility that things might slow down even more, that does dampen the willingness to buy."

Nationally, income growth remains positive, said Michael Niemira, chief economist for the International Council of Shopping Centers. In Hampton Roads, income levels are steady and unemployment is low, Pearson echoed.

But key measures of consumer confidence fell again in October, Pearson said. Indexes from the University of Michigan show that levels are worse than in October 2001 - a month after the terrorist attacks.

"The housing market, the credit crunch, the oil, the fact that people are up to their eyeballs in debt," said Margie Johnson, a national retail consultant based in Virginia Beach. "The sleigh ride might be a little bit bumpier."

Statewide, retail sales are running about 3 percent ahead of last year, Pearson said. Inflation accounts for an increase of about 2 percent, so actual growth is about 1 percent.

He expected that trend to continue through Christmas. Healthy retail sales growth would reach 5 percent, Pearson added, with an expectation of 2 percent inflation.

"I think people are cautious," said P.T. Wessells, who works in her daughter's store, Trina's Place, in The Gallery at Military Circle. "They will come in and look at prices. And they're comparing prices."

The store has responded to such price sensitivity by adding more items at the lower end of its range and limiting the amount at the high end, Wessells said. The shirt sets at Trina's Place, for example, start at $29 this year, compared with $59 normally.

Other retailers will discount heavily this season, the experts predicted. "They're already getting aggressive," Johnson said. "They're already looking at price breaks."

Even those financially comfortable are hunting for bargains. Michelle Malana, 45, said she always shops on price but considers it more crucial today. With the cost to drive from store to store, the Virginia Beach mom of a 3-year-old son spends time online to find the right deal.

"I want the best price, even if it's $2 less," she said.

She recently saw the lowest price for the Hi Ho! Cherry-O game at Wal-Mart but bought it at Toys R Us because the store offered money back on a prepaid Visa card for the purchase of certain board games. With Hi Ho! Cherry-O and Chutes and Ladders, she'll receive $4 on the prepaid card, which was the best discount, she said.

Barnes said he already has his 3-year-old son's Christmas list and watches for sales. He noticed the knights-and-castle set that his son wants at A.C. Moore, which he knows offers 50 percent-off deals. He waited for the coupon, then bought the gift, saving $30.

"This year, if it doesn't go on sale, I won't get it," he said of holiday purchases, "because a dollar doesn't go as far as it used to."

Other consumers, like the Felans, have worked to minimize their level of debt and take control of their finances.

Cheryl and Rick Thrasher of Virginia Beach make a point of paying off their credit card balances every month and not carrying debt. "If you start early, it's a lot easier to do that" by chipping away at the gift list and spreading the bills over a few months, said Cheryl Thrasher, 37. "After Christmas is the best time to start."

The Thrashers have planned for an expensive Christmas, with a few large gifts that tend to cost more as their children have grown older. Their 17-year-old son, almost ready to start college, will get a laptop computer. Their daughter, 15, is slated for a hand-me-down car. They've also ordered a Nintendo Wii online.

With those gifts and others for their 8-year-old son, Rick Thrasher estimated they'd spend about $3,500 this season. A Navy chief, he said he considers the family in good financial shape, "if gas would quit going up."

Karen Kola's mother, Barbara Morris, said she is "trying to use the credit cards less." She whittled a pocketbook full of plastic down to one card three months ago.

"It's so easy to pull it out," she acknowledged, especially with her finances "real tight" this year.

The 68-year-old Norfolk resident struggles with a fixed income and a list of costly medicines to treat high blood pressure, thyroid problems and diabetes. Sometimes, she'll try to extend the life of her medicines by skipping a day. "You have to pay your mortgage," she said.

Morris has spent more than $1,000 for her family in the past but will drop that to $300 or $400 this year, she said. She'll do smaller presents, but can't deny her three grandchildren.

"A lot of people," she said, "have it harder than I have."

Carolyn Shapiro, (757) 446-2270, carolyn.shapiro@pilotonline.com