Meet the Street: A Bah, Humbug Christmas Doesn't Ring True to This Consultant

In light of the weak economy, wave after wave of layoffs and the possibility of more terrorist attacks, consumer confidence has never seemed more vulnerable.

David Wolfe Creative Director, The Doneger Group

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To get an idea of how consumers are reacting to the recent shocks, TSC spoke to David Wolfe, creative director at The Doneger Group, which advises such companies as Nordstrom(JWN Quote), J.C. Penney (JCP Quote) and Saks(SKS Quote) on consumer behavior.

But Wolfe believes that, as a result of the terrorist attacks of Sept. 11, consumers -- at least those with jobs -- will spend more, not less, on loved ones this Christmas, and that fashion will favor merchandisers with all-American, wholesome looks.

As for the old theory that skirt lengths are a barometer of where the stock market is headed, Wolfe reports that the fall season's ladies' fashions have skirt lengths of widely varying degrees -- an indication, he says, that the stock market will continue to gyrate wildly.

TSC: On Wall Street, we keep hearing from one economist after another how the consumer is holding up. You're out in mainstream America, in the stores and the malls. What's your take on consumer sentiment and spending?

Wolfe: I think consumers will continue to spend. Retailers, certainly, are concerned about all of the layoffs, and I think there is a fear among the consumers that tomorrow may not be as good as today. But I think consumers will continue to spend, but in different places. They are much, much more price-, quality- and value-conscious, but I also expect second-tier luxury-good and personal items, such as leather jackets, cosmetics and costume jewelry to do very well.

TSC: Do you think consumers will respond to President Bush's and New York City Mayor Giuliani's call to spend and defy the terrorists?

Wolfe: I don't think people are going to respond in such a knee-jerk way to that, but virtually all of the companies that we work with have reported that their businesses are nearly exactly to where they were on Sept. 10. Business was not great, but at least it's back to exactly where it was after the first two-week emotional trauma when consumers put their lives on hold. There appears to be a solid recovery back to the status quo.

I have a sneaking gut feeling -- and I am totally alone on this -- that Christmas is going to be sensational. I have a feeling that it will be a very emotional time for people in terms of reorganizing their priorities. I think they are going to want to spend a lot of money and lavish their families and loved ones with gifts. The trauma of such great loss is going to affect people's shopping psyche. I have a feeling kids are going to be really spoiled this Christmas, and girlfriends are going to get a better present than they would have gotten.

That could be a surprising upturn for retailers, but I am not sure that is going to help the bottom line for a lot of stores because I think the industry is going to be so anxious to get the consumer in the door that they are going to be cutting prices and starting their price promotions sooner, to a point that some will practically be giving away the merchandise. There will be a major price war out there. Stores will be scrambling to get consumer dollars.

TSC: What kinds of items could do well in this new age of uncertainty since Sept. 11?

Wolfe: Quality classics. Anything uplifting. Clothing that glitters or sparkles, for instance, has been selling well. Costume jewelry. Significant pieces of jewelry. Leather. Cosmetics, absolutely.

Since Sept. 11, I have been doing a lot of research on what happened to fashion during times of strife, like World War II and the Korean conflict. Each time, there was a healthy bubble of merchandise that you could call "escapist merchandise": accessories and little luxurious items such as watches, jewelry and handbags. In World War II, frivolous hats were all the rage. Newspapers even ran articles and editorials saying it was people's patriotic duty to wear something frivolous to make people feel better.

TSC: The investors who read TheStreet.com would be keen on hearing from you which publicly traded retailers, consumer goods and merchandisers could do well in light of the economy and the specter of terrorism. What in the world of retailing would make a good investment at this time?

Wolfe: I am not permitted to comment on specific companies.

TSC: If you can't name the specific stores, can you speak generally about which categories stand to do well and how these world events are going to affect fashion?

Wolfe: Discounters will do very well because there is going to be a significant portion of the population that is going to be unemployed; it's obvious when you keep seeing all of the ongoing layoff figures.

Long term, over the next five years, I expect these tragedies will affect fashion and the arts in a big way. It will put an end to the cool, the edgy, and the dark and dangerous looks that have prevailed over the past 30 years: Goth, punk, grunge. We will be seeing healthier, more powerful and wholesome images -- the old all-American images.

TSC: While you are reticent to name specific brands, it sounds like you are talking about brands like Ralph Lauren (RL Quote), the Gap(GPS Quote), Old Navy and Tommy Hilfiger(TOM Quote).

Wolfe: That's right. Just from an image point of view, I have no problem naming those names -- the sort of iconic, American images. We are going to be seeing a lot of sun-tanned, good-looking, athletic, happy and smiling people [in store ads]. Once we do that, then the merchandise that follows suit will be more accessible to more people.

TSC: Legend has it that the stock market rises and falls in conjunction with skirt lengths. Searching for a barometer of what might lie ahead for the Nasdaq and the S&P, can you tell us where skirt lengths are heading this fall?

Wolfe: That's just an old wives' tale.

TSC: But would you please just indulge us and tell us where skirt lengths are going?

Wolfe: [Laughs.] Skirt lengths are going in all directions! There are some very short skirts, and there are some very long skirts. But most skirts are hovering right around the knee, so that tells me that things in the stock market are going to remain pretty much the same. If you want to follow the "skirt" market analysis, you could say the market is going to be doing just what it has been doing: Going up and down sharply!