Don't expect the war to jump-start sluggish retail sales.
That's what many analysts are warning. Instead, the war could sharply curtail spending in the short term. And even a quick, successful conclusion of the war likely won't help struggling retailers in the longer term.
"When bombs start falling and soldiers are at risk, people will be glued to their TV screens. They won't be shopping or going anywhere else," said Kurt Barnard, president and chief economist of Barnard's Retail Consulting Group.
"But once a regularity sets it, everybody will be fully aware of the fact that jobs are still tough to get. That's what has constrained consumer spending over the last year. And that's not going be any different regardless of what happens in Iraq."
Retailers have been struggling for much of the past year. The holiday season in particular was
disappointing for many retailers, with sales coming in below expectations for many of them.
The poor results have followed in February, which
recorded the largest month-over-month decline in retail sales since November 2001. And even without the war, many analysts were
expecting retailers to continue the losing trend in March and to report poor results for the first quarter.
As the companies have struggled, retail stocks have
plunged. The S&P Retail Index, for instance, has fallen more than 30% over the past year, and blue-chip retailers, such as
, have all seen their stocks drop significantly from their 52-week highs.
Although retail stocks rose with the broader market on Thursday, that's likely to be a short-lived phenomenon, said Liz Pierce, who covers retail stocks for Sanders Morris Harris. Since they've already fallen considerably, and with little positive financial news likely to lift them in coming months, retail shares are likely to tread water for the time being, Pierce said.
"I don't see a breakout pattern until the back of the year. And one of the reasons for that is that's when the comparisons start to turn easier. That's when business turned south," Pierce said.
Business will likely drop further for some retailers this week and for some time to come, because of the war. During the 1991 Persian Gulf War, retailers of discretionary items, such as big appliances, clothing and luxury goods, saw a decline in sales, noted Jay McIntosh, who heads the retail industry group at Ernst & Young. That's likely to happen again during this war, he said.
"People are just going to have a tendency not to spend on discretionary items because of the mood the war creates. People will be staying home," McIntosh said.
Retailers that depend on older consumers, such as department stores and some apparel stores, could also see a downturn in sales, said Richard Hastings, a retail analyst with Bernard Sands. Not only are consumers over 50 more likely to watch the war on television, they're also more likely to have seen their wealth deteriorate with the stock market declines over the last three years.
"That group is starting to cut back on spending," Hastings said. "The types of stores that are selling to that audience -- that is a very vulnerable bit of retail right now.
At least in the short term, the falloff in sales could be dramatic, said Britt Beemer, chairman and founder of America's Research Group. A recent survey of consumers indicated that more than 26% of them planned to curtail their shopping if and when a war started. Already in February, more than 6% of consumers said they had cut back spending because of war concerns, Beemer said.
In contrast, during the Gulf War, about 12% of Americans indicated they stopped shopping because of the war.
"If that number holds up, that would have a huge impact on retail," Beemer said.
Many analysts don't expect the impact of the war to be that large. But they also don't expect consumer spending to pick up once the war is over. In addition to concern about jobs, analysts say that conservative spending by businesses, the lack of must-have products and continuing geopolitical concerns will likely keep sales down.
Big companies have come to dominate the retail marketplace, noted Russell Jones, president of Decisive Retail Technology. Because such companies have to find products that will sell well nationwide, they often take a very conservative approach to what they offer in their stores, he said. That outlook has only been reinforced by the weakness in consumer demand, Jones said.
Unfortunately, the retailers are creating something of a self-perpetuating cycle, he said. Consumers aren't spending because there's nothing interesting to buy. And there's nothing interesting on store shelves because retailers are unwilling to take the risk that consumers won't purchase it.
"That's not going to turn around as quickly as the war will," Jones said.