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Crash may affect consumers
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November 12, 2001: 2:56 p.m. ET
Retail industry watchers worry crash could hurt already-slow spending.
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NEW YORK (CNN/Money) - Holiday spending, already hurt by the slowing economy and Sept. 11 terrorist attacks, is likely to take another hit regardless of the cause of Monday's crash of a passenger jet near New York's JFK Airport, experts said.
Americans, who have been shying away from malls and other large public places since Sept. 11 for fear of another attack, could hunker down at home even more now that another plane has crashed, experts said.
An American Airlines jet with 255 people on board crashed into a residential neighborhood in the Rockaway section of the New York City borough of Queens at 9:17 a.m. ET, after taking off from Kennedy Airport.
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Experts worry Monday's plane crash will further dampen holiday spending | |
Investigators had not determined the cause of the crash as of midday, but some believe that terrorist-related or not, the crucial holiday shopping season could be in more trouble than before. And if consumer spending drops further, analysts cautioned, that could lead to a more protracted recession.
"Terrorism is not just about killing people. It's about undermining our society, creating insecurity and trying to disrupt the economy," said Jerry Hauer, managing director of security firm Kroll Associates Inc. "They certainly have had an impact on the economy, but at this point in time it's hard to predict what will happen during the Christmas season."
Consumer spending, which fuels three-quarters of the U.S. economy, is normally at its highest this time of year as retailers stock shelves in anticipation of the busy holiday season.
However, industry watchers and experts are anticipating sharply lower holiday spending compared with a year ago as companies continue to cut jobs and Americans shy away from malls out of safety concerns. And the impact of this latest crash has yet to be determined.
"I think there continues to be a very strong psychological impact with people worried about their own safety and the safety of their families," Robertson Stephens retail analyst Bill Dreher said. "I don't know what's going on with this flight, but whatever it turns out to be, it adds a significant psychological impact on consumer spending and on how the stocks behave."
Mall traffic sank 8.2 percent last week compared with the previous week, according to a weekly report on chain-store sales from Bank of Tokyo-Mitsubishi and UBS Warburg. That represents the twenty-seventh consecutive week of declining mall traffic, according to Michael Niemira, senior economist at BTM and the report's primary author.
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Holiday-season sales, that is, the five-week period starting the day after Thanksgiving and running through the last week of December, are still expected to show an increase over a year ago, according to some, though not at the robust rate of a few years ago.
And most of any increase is expected to be driven by steep discounts and promotions, which may boost customer traffic, but take a bite out of retailers' fourth-quarter and full-year profits.
"We believe that consumers are going to be reluctant to visit shopping malls due to their being a population center and a potential terrorist target," Robbie Stephens' Dreher said. "We think some of the department stores in urban centers, particularly those that are American icons, also represent a security risk."
But others are not so sure just how much more of an effect Monday's crash could have since spending has already ebbed so far from year-ago levels.
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"Unless it turns out that this is another terrorist attack, I don't believe it's going to have as much of an impact on consumer spending as we saw in the month of October, when it had declined sharply," said Kurt Barnard, president of Barnard's Retail Consulting Group Inc., which publishes an industry newsletter. "If this does turn out to be a terrorist attack, all bets are off."
An Oct. 26 poll conducted by RoperASW, indicates that 54 percent of all Americans still plan to spend the same amount or more on holiday purchases this year compared with last year.
Among the 26 percent who said they planned to spend less, most cited their "economic situation" as the primary reason for doing so, the report said.
And exactly how Monday's crash factors into the equation remains undecided.
"The one thing that everybody kind of has tucked into the back of their minds is that if there is some sort of event that affects a mall between now and Christmas. It's hard to say whether another plane crash like this is going to have much of an impact yet," said Richard Baum, a retail analyst at Credit Suisse First Boston.
Meanwhile, other areas of the economy that affect consumers were already showing the effects of Monday's crash. Airline stocks were hit hard in the hours immediately after the crash, adding further pressure to an industry that has already seen sales drop precipitously since Sept. 11. 
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