Retail threat: Housing, credit fear more than gas prices

NEW YORK (CNNMoney.com) -- Higher gas prices couldn't deter Americans from their urge to splurge, but a new survey Thursday showed consumers are much more scared about the twin squeeze on their wallets from declining home wealth and a credit market freeze.

The 5th annual Consumer Shopping Pattern survey from retail consulting firm Customer Growth Partners indicates that all the noise about consumers pulling back because high gas prices was much ado about nothing.

Instead, retailers are shaking in their boots because their customers are much more fearful about the pinch on their wallets from a softening housing and shaky credit markets.

The study was based on the firm's proprietary data collected from 100 of the nation's largest retailers and consumer focus groups conducted between May and July of 2007.

"The fear that higher gas price impacts on overall consumer spending may be overstated, unless gas spikes above $4," the report said.

Still, the report acknowledged that some consumers have started to "trade down" to discounters, such as Wal-Mart (Charts, Fortune 500) and Target (Charts, Fortune 500), from mid-priced department stores, such as Kmart and J.C. Penney (Charts, Fortune 500), in order to save money on discretionary purchases.

"Buffeted by the housing slump, credit fears and a volatile stock market, a 'circumspect consumer' has appeared who carefully considers all factors before major purchases, and shops smartly by comparing prices and avoiding wasteful items and trips to stores," Craig Johnson, president of Customer Growth Partners said in the study.

According to the Census Bureau, which tracks U.S. household appliance sales, this trend is already slowing down big-ticket investments, such as washing machines, dryers, refrigerators and home renovations, which many consumers pay through credit financing.

Both Home Depot (Charts, Fortune 500) and Lowe's (Charts, Fortune 500) said their home improvement business will get worse in the following months and potentially into next year.

On Thursday, department store operator Sears Holdings (Charts, Fortune 500) reported a steep 40 percent drop in its second-quarter profit, which the company blamed on deeper discounts that erode its profit margins. But Sears is also the nation's largest seller of big-ticket home appliances.

As consumers delay those types of purchases, it directly impacts Sears' business. Sears, however, didn't break out category sales in its earnings report.

Sears also could not immediately be reached for comment.

"Sears' performance last quarter speaks to what we're referring to as the circumspect consumer," said Johnson. "Cash-strapped consumers are putting off more expensive purchases until they feel more comfortable about their own financial situation."

In the current environment, he said low- to mid-income consumers will only buy the new washing machine and dryer or remodel their kitchen if they absolutely have to.

Regarding the housing and credit impact on the upcoming holiday season, Johnson said it's up to retailers to lure shoppers to their stores in the year-end bargain-hunting months of November and December.

Those two months account for as much as 50 percent of a retailer's annual sales and profits.

"Americans have taken a bit of a breather the last few months but will soon rebound just as they have in the past," he said.

"While the economy may now be soft, astute retailers are investing in their business and will be well-positioned when retail spending bounces back in time for the holidays."