Weather, Discounts Collide as Holiday Shoppers Dither

Shoppers’ search for bargains during a recession may be disrupted by wintry weather in parts of the U.S. as the holiday-shopping season enters what may be a make-or- break weekend for some retailers.

Today may be the busiest shopping day of the holidays, said Michael Niemira, chief economist at the International Council of Shopping Centers. Shoppers who have waited for deeper discounts probably will be rewarded as retailers seek to clear inventory and salvage what may be the worst season in 40 years, even though their fourth-quarter profits may suffer as a result.

Snowstorms and freezing temperatures might put a crimp in those plans, said Scott Bernhardt, operating chief of Planalytics Inc., a Wayne, Pennsylvania-based weather consulting firm.

“Saturday has become more important from a weather perspective because a lot of major markets lost Friday, and Sunday we have another storm coming in,” Bernhardt said. “It’s so close to Christmas, shoppers are running out of time.”

Macy’s Inc., the second-largest U.S. department-store chain, is offering $800 sapphire or ruby and diamond rings for$249 during part of the day. Gap Inc.’s Banana Republic chain is advertising clothing for as much as 60 percent off. A $2,100 Marc Jacobs dress was listed at $629.95 on Saks Inc.’s Web site.

“This year, you have many retailers just trying to clear inventory to raise cash rather than to achieve highest profit,” said Linda Tsai, a retail analyst at MKM Partners LLC. “It has the potential to create havoc for retail and considerable bargains for consumers over the next few weeks.”

‘Largest Weekends’

The Standard & Poor’s 500 Retailing Index has shed 31 percent this year, with only two of its 27 companies gaining. The index doesn’t include Wal-Mart Stores Inc., the world’s largest retailer, which rose 33 cents to $55.74 yesterday in New York Stock Exchange composite trading. The stock has gained 17 percent this year.

“I do believe this is going to be one of the largest weekends in retail history,” Toys “R” Us Chief Executive Officer Gerald Storch said yesterday in an interview. “There’s a lot of pent-up demand, and there’s going to be fantastic deals.”

Cash-strapped shoppers grappling with shrinking housing prices and rising unemployment have cut back on non-necessities, pushing the U.S. economy into a recession. Consumer spending accounts for more than two-thirds of gross domestic product.

“We’re buying less stuff for each other and just overall,” Dennis Decker, a 47-year-old landscape architect, said today outside a Kohl’s in Douglasville, Georgia. “Usually I buy stuff for my sisters. This year I’m just going to make them some Christmas ornaments.”

Las Vegas Snow

At least a dozen retail chains, including Circuit City Stores Inc., have sought bankruptcy protection this year. A credit squeeze may result in thousands of locations being closed in 2009, Gregory Segall, a managing partner at buyout firm Versa Capital Management Inc., said Dec. 17.

A storm dropped snow on Las Vegas before sweeping across the country to hit Chicago, Milwaukee and Detroit. New York City and its suburbs got several inches, while Boston and Connecticut were expecting to see a foot or more of snow, with more on the way. Temperatures may fall below zero Fahrenheit (-18 Celsius) in the Midwest later this weekend.

The average American has finished almost two-thirds of his or her holiday shopping, according to a National Retail Federation survey conducted Dec. 16 to 18 by BIGresearch and released yesterday.

Black Friday

For the last few years, Black Friday, the day after Thanksgiving and the unofficial start to the holiday-shopping season, has been the biggest shopping day in sales, said Ellen Davis, an NRF spokeswoman. This year, with people waiting until the last minute to make many purchases, today is “incredibly important,” she said.

Alex Galvez, 28, an automotive technician who works in Long Beach, California, said he lost half his income this year. He was shopping for his nephews today at the Westfield Santa Anita Mall, in Arcadia, California.

“In past years, we’d probably get 10 gifts for each of our nephews,” he said. “This year it’s probably one.”

The ICSC has estimated that in November and December, sales at stores open at least a year may decline as much as 1 percent. That would be largest drop since at least 1969, when the New York-based trade group starting tracking data.

“It’s sad for the kids,” said Galvez. “They’re used to getting a ton of gifts.”

Chrysler, GM Get $3.3 Billion Canada Loan, Could Receive More

General Motors Corp. and Chrysler LLC will get C$4 billion ($3.3 billion) in government loans from Canada and the province of Ontario, Canadian Prime Minister Stephen Harper said yesterday, refusing to rule out further aid.

A day after the U.S. agreed to lend the two automakers $13.4 billion in emergency loans to keep them operating, Canada and Ontario said they will advance General Motors’ Canadian unit C$3 billion while Chrysler will receive C$1 billion. GM had asked for a total of C$2.4 billion in aid from Canada through the second quarter and Chrysler LLC had not disclosed a sum.

“It’s pretty striking that they’re lending more money than was asked for,” Dmitry Anastakis, a professor of history and Canadian auto policy at Trent University in Peterborough, Ontario, said in an interview yesterday. “This totally conflicts with the rhetoric we’ve heard from Ottawa about the need to protect the interest of the taxpayers.”

“I cannot rule it out,” the prime minister told reporters at a briefing yesterday in Toronto when asked whether he may offer the automakers additional aid. “We have a social responsibility that goes beyond the marketplace.”

The automakers must accept limits on executive compensation and report “material” transactions of more than C$125 million, the governments said in a joint statement. Harper declined to say what penalties Chrysler and GM would face if they had to file for bankruptcy and could not repay the loans.

“We will not allow a catastrophic failure” of the Canadian auto industry, Harper said. “They will not fail in my judgment” but “the auto companies have to change the way they do their business in a very serious way.”

‘Proportional’ Loan

Canadian Industry Minister Tony Clement on Dec. 12 pledged to offer GM, Chrysler and Ford Motor Co.’s Canadian units federal and provincial aid “proportional” to their contribution to North American production, which is about 20 percent. Ontario, the country’s automaking hub, last year built more cars than Michigan.

The aid package is “not a blank check” and Canadian taxpayers expect the money to be used to renew the industry and involve all stakeholders in that process, Harper said.

Ontario will contribute C$1.3 billion to the package and the Canadian government C$2.7 billion, Ontario Premier Dalton McGuinty said at the same news conference.

“This is about 400,000 jobs and 400,000 families,” said McGuinty. “There’s a lot at risk,” he said, adding that there is a “real possibility” that Chrysler and GM will ask for more money, which, he said, will have to be considered if and when that happens.

Announcement Praised

The Canadian units of both GM and Chrysler praised the announcement.

This support is a “welcome financial bridge,” Arturo Elias, president of GM’s Canadian business said in a Marketwire statement. “GM Canada intends to earn the trust being placed in us.”

“Chrysler is very pleased with the decision by the Canadian government to provide this loan, which will ensure Chrysler has sufficient funds to continue our restructuring activities during this unprecedented downturn,” the automaker’s Canadian unit said in an e-mailed statement.

The Canadian Auto Workers union, which represents about 27,800 active GM, Chrysler and Ford Motor Co. workers in Canada, lauded the package and pledged to continue working with the companies and governments to ensure the industry’s survival in Canada, Ken Lewenza, president of the union said.

The pledge “was important for our industry, our workers and for all citizens of Canada,” Lewenza said yesterday in a press briefing.

Declined to Speculate

He declined to speculate on whether his membership will have to take wage-and-benefit cuts as part of the package.

The U.S. package requires companies to have pay-and-work rules in place by the end of 2009 that make them competitive with those of overseas automakers with plants in the U.S.

The C$600 million in loans beyond what GM had asked for may be a sweetener to keep more jobs or assembly projects in Canada, Trent’s Anastakis said.

“Canada is in a position here that it can’t make too many demands and may be making a generous offer so Ontario doesn’t get left behind when the real restructuring begins,” he said.

GM will receive C$800 million Dec. 29, C$1.2 billion on Jan. 30 and a further C$1 billion on Feb. 27. Chrysler gets C$400 million immediately with another C$400 million at the end of January and the balance in February. The loans are for three years and are charged at 3 percentage points above the London Interbank Offered Rate, or Libor. Libor is currently 1.5 percent for 3-month loans in dollars.

Auto Suppliers Insurance

The Canadian government said it will extend insurance to auto suppliers for their accounts receivable to ensure that they can continue to secure credit. The government said it will also improve access to credit for consumers and businesses to stimulate car purchases and help car dealers without giving details.

The industry will have to restructure and will probably end up being smaller, said Harper. “This will be a difficult restructuring,” said McGuinty.

Ford’s Canadian unit had asked for access to as much as C$2 billion in “standby” credit, to be used if the current economic crisis worsens. Today’s statement did not address the status of that request.

Eurozone retail sales slump 2.1%

Shoppers look at a pre-Christmas sale at a leather goods shop in Milan

Retail sales across the 15 nations that share the euro fell more than expected in October, increasing the likelihood of a cut in interest rates this week.

Sales across the eurozone declined 0.8% on a month-by-month basis in October, and by 2.1% from a year earlier, more severe than analysts had expected.

A separate business activity survey said output levels had worsened.

The European Central Bank (ECB) is widely expected to cut rates from the current 3.25% level on Thursday.

Last month it reduced rates by half a percentage point, and ECB president Jean-Claude Trichet said further cuts could not be ruled out as Europe aims to limit the economic downturn.

‘Renewed deterioration’

Figures from Eurostat showed inflation in the eurozone fell to 2.1% in November, from 3.2% the month before, furthering the chance of a rate cut.

The eurozone service sector is being hit ever harder by the financial crisis, muted consumer spending and markedly weaker activity in key export markets IHS Global Insight economist Howard Archer

“Worries about the outlook for the economy and the labour market are probably prompting households to save relatively more,” said Nick Kounis, chief European economist at Fortis Bank.

“This leaves High Street activity heading for a renewed deterioration in the fourth quarter following the improvement seen in the third.”

Retail sales in September had been flat compared with August, and down 1.4% on an annual basis.

‘Horrible survey’

The separate business activity data came from research group Markit.

It has revised its purchasing managers’ index down to 38.9 points in November from its first estimate of 39.7.

Any figure less than 50 representing a contraction, and the latest number compares unfavorably with the 43.6 figure in October.

Fortis’ parallel service sector activity index also fell further than first estimated in November, down to 42.5 points from the initial 43.2 points figure.

“This is a horrible survey across the board, showing that the eurozone service sector is being hit ever harder by the financial crisis, muted consumer spending and markedly weaker activity in key export markets,” said IHS Global Insight economist Howard Archer.

European shares were down in Wednesday trading, with Germany’s main Dax index 1.8% lower, and France’s Cac falling 1.6%.

EU bans imports of Chinese soya

EU nations imported about 68,000 tonnes of soya products in 2007

The European Commission has banned imports of Chinese soya-based food products intended to be eaten by infants and young children.

The decision was taken after a chemical called melamine, used in pesticides, was found in Chinese soya bean meal.

All other soya products will have to be tested when they are imported.

Last year, EU nations imported about 68,000 tonnes of products containing soya with a total value of 34m euros ($43m; £29m), the commission said.

Melamine was the chemical at the centre of the milk scandal in China in September in which tens of thousands of babies became ill, and at least four died.

Eggs later became contaminated because melamine had been in feed given to hens.

Melamine is rich in nitrogen and may be used in sub-standard milk, which is often tested for nitrogen levels to assess its quality.

Latvia’s economic boom turns sour

Latvia has experienced years of boom, but is now in recession

Over the last two years the small Baltic state of Latvia has collected a string of European records.

But unfortunately for the population of the country, they are not the sort of records that prompt lavish street celebrations and ticker-tape parades.

Up until a year ago the country, at various points, held the record for the fastest rate of wage growth, the steepest rise in house prices and the highest rate of inflation.

But just a few months on, things could not look more different.

Having seen its economy grow at a rate 11% in 2007, Latvia’s GDP is now shrinking by more than 4%.

After a property boom, house prices are now falling at a faster rate than any other country in the world – down 24% in the last 3 months.

After years living in a world boom, Latvians are having to get used to a world of bust.

The once rampant economic ‘Baltic Tiger’ has been reduced to begging the international community for a loan of $6.5bn (£4.3bn).

Property bubble bursts

Crunching through the snow at a new apartment block on the outskirts of Riga is property developer, Viktors Savins, of ARCO Real Estate.

Viktors Savins outside his new apartments outside Riga

“From the top of the market, we’ve had to cut the price of these apartments by around 35%,” says Savins surveying the half-finished development.

Savins’ company began work on the four-storey flats in 2004 while prices were still rising, since then the property market has fallen by over 60%.

The housing bubble was fuelled by ordinary citizens who were encouraged to borrow up to 10 times their salary by foreign banks who in turn were feeding off the global supply of cheap credit.

“During the boom investors were in the market trying to fulfil their own ‘American Dream’ of getting rich quickly by doing nothing,” says Savins.

But with unemployment set to double to over 10% next year, many Latvians are for the first time beginning to understand the true meaning of the words ‘negative equity’ and ‘repossession’.

Killing the stag

Riga’s old town is populated by buildings from various episodes of foreign occupation – from the Germans in the 12th century through to Latvia’s time as part of Soviet Union during the last century.

But since independence in 1991, a different type of foreign invader has occupied the city’s cobbled streets.

Large groups of young men on stag parties began coming to the capital in the early part of the decade as the country was pulling away from the Soviet Union’s shadow.

We used to be on the cheaper side, but if you’re a British tourist or a Spanish tourist Riga has got expensive Ivo Grubanov, Baltic Holidays

Riga provided the three essentials for the original Eastern European stag: cheap beer, inexpensive flights and a wide selection of strip clubs.

The local currency, the lat, is pegged to the euro and so during the early part of the decade it offered visitors from the UK a very attractive rate.

But as the pound has fallen against the euro over the past year, bars in Riga have seen takings slump as tourists opt to holiday at home.

Raimonds Tomsons is the sommelier at Vincents, one of Riga’s most expensive restaurants and has seen the economy boom over the past few years.

“These times are very tough – many restaurants are closing as they simply don’t have any customers – some only have three people coming in a day. It is very difficult to survive,” he said.

Expensive beer

Leaning on the bar at Paddy Whelan’s Irish bar in centre of Old Riga is Ivo Grubanov who organises tours for a British firm, Baltic Holidays

“We used to be on the cheaper side, but if you’re a British tourist or a Spanish tourist Riga has got expensive,” he said.

Paddy Whelan’s bar in Riga has seen fewer stag parties

Grubanov caters for everyone from retired couples to rowdy stag parties, dispensing wisdom on everything from 12th century architecture to the cheapest city drinking holes.

And he’s well aware of the cost that the Latvian government’s insistence on staying pegged to the euro is having on his customers.

“It breaks my heart to bring young lads to a bar and tell them that a pint of beer costs five or six pounds,” he says

“There’s no good reason to have the lat to be so artificially high, and it would be much more sensible if we could float our own currency.”

But with the Latvian government determined to meet the criteria to allow them to officially adopt the euro in 2012, it seems that it will be businesses like Ivo’s that will continue to suffer.

‘Orgy of credit’

The skyline of Riga is dominated by several glass-clad towers rising high above the more traditional pitched roofs of Riga’s old town.

These shiny constructions house the headquarters of banks from across the Baltic Sea – mainly from Sweden and Denmark.

It’s these institutions that are blamed for fuelling the recent credit boom. But it was a run on a domestic bank, Parex, that first pushed the government into the arms of the IMF.

LATVIA’S RECORDS Highest inflation rate – 17.9% in May Highest growth rate – 10.3% in 2007 Biggest fall in growth in Q3 2008 – minus 4.2% Fastest falling house prices in the world in 2008

Depositors in the bank withdrew their money after rumours circulated that the bank was close to collapse, forcing the government to bail it out.

For Alf Vanags, from the Baltic International Centre for Economic and Policy Studies, the origins of Latvia’s latest economic palpitations are increasingly obvious.

“Over the last few years there has been an orgy of credit,” says Vanags.

“People have been borrowing on the assumption that the boom years would go on forever – but now they’ve stopped and they’re having to deal with it.”

Snowstorms and arrests

After years of mild winters, Latvia is currently experiencing its coldest periods in years, with the latest snow storm leaving three people dead

Along with the miserable weather has come a new crackdown by the government on people they see as deliberately destabilising the economy.

Over the past few weeks, a university lecturer and a musician have been arrested after publicly casting doubt on the country’s economic future.

And so, nearly twenty years after escaping the clutches of Soviet domination, it seems that Latvia’s biggest challenge may yet be to come.

“I believe that it’s like the turbulence you get in an aeroplane, we just need to hold tight and get through it,” says Viktors Savins.

While he may well be right, it would seems that there are plenty of bumps ahead for Latvia in what is increasingly looking like a very hard landing.