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Decrease in consumer spending could spell doom for retailers
  
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By MATTHEW HUISMAN
Consumer spending dropped by 1 percent during the month of October, according to a report by the Department of Commerce. Despite a 0.3 percent increase in personal income, Americans were tighter with their money last month.
“That’s not good news,” said Warren Matthews, an economics professor at Le Tourneau University. “Consumers are being very cautious these days.”
This is the sharpest decline in consumer spending since the terrorist attacks of September 2001.
Texas was one of 10 states that saw an increase in jobs last month, according to a Nov. 21 Department of Labor report. During October Texas gained about 23,000 jobs or 0.2 percent growth.
“If a person loses their job, they will tighten their budget,” Matthews said. “Even people who didn’t lose their jobs are being cautious.”
The decrease in consumer spending is not good news for retailers and malls who are already struggling.
General Growth Properties, the company that owns Deerbrook Mall, is teetering on the verge of bankruptcy, according to a Nov. 10 filing with the Securities and Exchange Commission. GGP is the property manager for five Houston area malls, including Deerbrook Humble.
At the end of September, the company had accumulated $1.13 billion in debt that matures in December 2008. On top of that the company has an additional $3.07 billion that will mature in 2009.
“Due to the continued weakness in the credit markets, there can be no assurance that we will be able to refinance this debt on acceptable terms or otherwise,” the statement said.
The company said that failure to refinance the debt would result in a default on the loans. GGP said that the “deteriorating economic conditions” negatively impacted their ability to do business.
“General and retail economic conditions continue to weaken, and we expect this weakness to continue and worsen in 2009 as the economy enters a recessionary or near recessionary period,” the statement said. “Given these expected economic conditions, we believe there is a significantly increased risk that the sales of stores operating in our centers will decrease, negatively affecting their ability to make minimum rent payments and increasing the risk of tenant bankruptcies.”
Matthews explained that banks are being just as tight with money now as consumers.
“Banks who normally make loans are holding back and trying to keep their cash,” Matthew said.
He added that GGP can’t raise the rent on renting businesses because they aren’t making as much money. Ultimately, Matthews said GGP might have to sell off some of their properties, but said with the current market that buyers are scarce.
Deerbrook already has a vacant retailer and the decrease in spending will not boost business. The Macy’s location inside the mall remains unopened after water damage forced its closure following Hurricane Ike.
“Since consumers aren’t spending, the retailers are going to be in trouble this year,” Matthews said.
Despite the companies’ troubles, spokesman David Keating said that it would be “business as usual” for GGP.
“There will be no impact on our properties,” Keating said. “They will remain open and remain vibrant. We’re getting ready for what we hope is a great holiday season.”
“That’s not good news,” said Warren Matthews, an economics professor at Le Tourneau University. “Consumers are being very cautious these days.”
This is the sharpest decline in consumer spending since the terrorist attacks of September 2001.
Texas was one of 10 states that saw an increase in jobs last month, according to a Nov. 21 Department of Labor report. During October Texas gained about 23,000 jobs or 0.2 percent growth.
“If a person loses their job, they will tighten their budget,” Matthews said. “Even people who didn’t lose their jobs are being cautious.”
The decrease in consumer spending is not good news for retailers and malls who are already struggling.
General Growth Properties, the company that owns Deerbrook Mall, is teetering on the verge of bankruptcy, according to a Nov. 10 filing with the Securities and Exchange Commission. GGP is the property manager for five Houston area malls, including Deerbrook Humble.
At the end of September, the company had accumulated $1.13 billion in debt that matures in December 2008. On top of that the company has an additional $3.07 billion that will mature in 2009.
“Due to the continued weakness in the credit markets, there can be no assurance that we will be able to refinance this debt on acceptable terms or otherwise,” the statement said.
The company said that failure to refinance the debt would result in a default on the loans. GGP said that the “deteriorating economic conditions” negatively impacted their ability to do business.
“General and retail economic conditions continue to weaken, and we expect this weakness to continue and worsen in 2009 as the economy enters a recessionary or near recessionary period,” the statement said. “Given these expected economic conditions, we believe there is a significantly increased risk that the sales of stores operating in our centers will decrease, negatively affecting their ability to make minimum rent payments and increasing the risk of tenant bankruptcies.”
Matthews explained that banks are being just as tight with money now as consumers.
“Banks who normally make loans are holding back and trying to keep their cash,” Matthew said.
He added that GGP can’t raise the rent on renting businesses because they aren’t making as much money. Ultimately, Matthews said GGP might have to sell off some of their properties, but said with the current market that buyers are scarce.
Deerbrook already has a vacant retailer and the decrease in spending will not boost business. The Macy’s location inside the mall remains unopened after water damage forced its closure following Hurricane Ike.
“Since consumers aren’t spending, the retailers are going to be in trouble this year,” Matthews said.
Despite the companies’ troubles, spokesman David Keating said that it would be “business as usual” for GGP.
“There will be no impact on our properties,” Keating said. “They will remain open and remain vibrant. We’re getting ready for what we hope is a great holiday season.”
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