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What's A Retailer To Do?

LYNN NEARY, Host:

For American retailers, the bad news just kept coming this week. Circuit City joined the growing list of chain stores filing for bankruptcy. Best Buy warned of what it called "seismic changes" in consumer spending habits. And yesterday, the Commerce Department said retail sales fell at a record 2.8 percent in October. The downturn is already forcing many stores to mark down what they sell. NPR's Jim Zarroli reports.

I: When you guys finish there, I want to do a walkthrough outside all the windows, please.

OK: OK, Mani(ph).

JIM ZARROLI: At Lord & Taylor on Manhattan's Fifth Avenue, workers are getting ready for the holidays, setting up the toy train and the twirling jack-in-the-box in the window display. A lot of shoppers mill around to watch them work, but Roz Fallick(ph), who's waiting for a friend outside the store, says the crowds this year are thinner than usual. Fallick says she understands why. She's retired and she lost money in the markets recently, so she isn't buying as much this year as she used to.

ROZ FALLICK: I might have been a little bit more carefree about it. But now I just don't feel I can afford to be thoughtless about just buying everything and anything I see.

ZARROLI: Those are words that send shivers down the spines of big retailers. Big chains like Abercrombie & Fitch, Nordstrom, and JCPenney have all reported sharply lower profits during the third quarter. Retail consultant Howard Davidowitz says consumers are so loaded down with debt and so worried about the economy that they've sharply cut back on spending.

HOWARD DAVIDOWITZ: We're in a crisis of unbelievable proportions, and the consumer is at the center of it.

ZARROLI: As a result, he says, chains like Linens-N-Things and Mrs. Fields Cookies have declared bankruptcy, and others, like Value City, have liquidated.

DAVIDOWITZ: It's all terrible. We're going to close next year twelve, thirteen thousand stores. We're going to close over a thousand auto dealerships next year alone.

ZARROLI: Even the strongest retail chains are under considerable pressure. This week, the chief financial officer of Macy's, Karen Hoguet, told investors this is the most challenging business environment she'd ever seen. Hoguet said the company is doing what it can to keep its merchandise moving.

KAREN HOGUET: Needless to say, we are taking more markdowns than we had planned to keep our inventory current.

ZARROLI: At Lord & Taylor, a lot of items are already discounted. And Ruth and Arnot Drucker(ph), who are visiting New York from Baltimore, say they were handed cards good for an additional 15 percent off any item just for walking in the door.

ARNOT DRUCKER: The coupon's for everything - cashmere sweaters we were looking at. It looks like men's sweaters...

ZARROLI: Is it good stuff? I mean, does your...

RUTH DRUCKER: Beautiful stuff. Really fine stuff.

DRUCKER: You're getting the best bargain in New York.

ZARROLI: Retailers are hoping that by offering discounts like these, they can lure customers back into their stores. But with unemployment rising every month and stock prices tanking, discounts alone won't be enough to save the shopping season. Jim Zarroli, NPR News, New York. Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

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Jim Zarroli is an NPR correspondent based in New York. He covers economics and business news.