Financial Crisis, Phase Two: Consumer Credit
I have to admit it’s a depressing time to be writing about multichannel merchants. So many of them have failed, are failing, or are about to fail – and it’s tough sometimes to have to interview business owners who just aren’t sure whether they’ll be around next year.
Don’t get me wrong, I love my job, it’s just that lately I’m starting to feel like a social worker.
A few weeks ago I was still pretty optimistic – I was thinking it would take just a few months for the stock market to stabilize, for consumer confidence to be restored, and for things to get relatively back to normal.
But after reading a few articles today about the looming credit crisis, my feeling is the situation is more than likely going to get worse. My guess is that roughly 30% of the companies we covered in Multichannel Merchant in 2008 won’t be around by the end of 2009.
The reason? It’s pretty simple, really: The wave consumers have been riding has hit the beach and everyone’s credit cards are now maxed out. As the economy crumbles and unemployment rises, people are going to have an even harder time paying off their balances, and defaults will rise. This in turn is going to cause credit card issuers to tighten standards, thus sapping consumers’ ability to stimulate the economy.
I say to heck with what’s going on with the housing crisis and the downturn Wall Street – the credit crisis is probably the worst thing that could happen to U.S. businesses. And unlike the ups and downs of the stock market, it has a direct and immediate impact on consumers.
Economists are saying the credit crunch is the next phase of the overall crisis we are experiencing. Although our credit card debt is only a fraction of our mortgage debt (there is roughly $1 trillion of outstanding credit card debt compared to $14 trillion worth of outstanding mortgages), the effect of the credit crisis is arguably even more devastating for our economy. If you’re not concerned about the credit crisis yet, just check out these recent articles on CNBC here and here.
October 19th, 2008 at 2:32 pm
Patrick you are absolutely right that the financial crisis will force a many retailers out of business, but my hunch is those with a razor sharp focus on customers will weather this storm. Retailing over the last 10 years has been like shooting fish in a barrel– no matter what kind of store a retailer opened credit rich customers always managed to spend. During this time retailers increasingly focused on global sourcing which improved margins even more but instead of using margins to improve product assortment or invest in better designed stores they simply kept the profits for themselves. So I cannot feel sorry for them now. Long before this crisis companies like Wilsons Leather and Sharper Image were being very poorly run.
On the flip side look at companies like Timberland and Dale and Thomas popcorn. These companies have constantly pushed the envelope of customer experience innovation so without even looking at their financials I feel confident I’ll see them at the other side of this crisis.