Retailing: New habit of discount shopping hits all economic strata.

By Maria Panaritis Inquirer Staff Writer

Desperate times call for discount measures. It's the new rule of retail, and cash-squeezed consumers are laying down the law.

An astounding number of penny-pinched shoppers are handing the industry some wake-up news this back-to-school season: Because of expensive gas and overall economic woes, consumers plan to scavenge for bargains like hustlers in a cash-flow crunch, according to two surveys out this week.

In vogue: Dollar stores, off-price discounters like Marshall's and T.J. Maxx, and comparison-shopping on the Internet. Out of vogue: Pretty much anything not on sale. Serious sale. Most shoppers plan to buy their children's pens, bookbags, clothes and other back-to-school necessities at discount stores - 73 percent, according to the National Retail Federation; 88 percent, according to Deloitte L.L.P.

Almost four in 10 will shop at dollar stores; eight in 10 will look to buy more things on sale than last year, according to Deloitte. The nation's newfound penchant for discount shopping is cutting across all economic strata, according to Deloitte's mid-July survey. One analyst said the humbler habits may be here to stay, unlike past downturns, when consumers pulled back until the storm passed.

"It's not just affecting those with less in their wallets," said Tara Weiner, managing partner of Deloitte & Touche's Greater Philadelphia office in Center City. "It's affecting just about every wallet. And it's causing a change in behaviors. It's changing how they shop."

Weiner said 61 percent of consumers polled by Deloitte said they believed the nation was in a recession, even though economists and politicians continued to duke this out. Those consumers are acting like recession shoppers, and a "structural shift" in shopping habits has set in, said Weiner, who has monitored the retail industry for 20 years.

The discount-hunting trend has emerged since last summer's implosion of the subprime-lending market and soaring crude oil prices shocked the economy and began draining consumer wallets and retail profit. A similar thing happened during the 2001 recession. Then and now, discount-shopper ranks swelled with people "trading down" from marquee stores. "People didn't go without," Weiner said, "but they were in greater search of value."

Back then, 83 percent of shoppers said they planned to do some of their holiday shopping at discount retailers - including three quarters of households with income of $75,000 or more, according to Deloitte. In 1993, only 57 percent of all households planned to shop at a discount store, Deloitte said. While conventional retailers like Macy's and a number of mall stores have struggled in this environment, dollar-store chain Dollar Tree Inc., and off-price retailers such as Marshall's and T.J. Maxx, have benefited.

Dollar Tree, which has 76 stores in the eight-county Philadelphia region, plans to open as many as 245 stores across the country this year, while other retailers have pulled back. Broker Donna Drew, of Metro Commercial Real Estate Inc., said the expanding chain has kept her busy 13 years as they've pursued store locations to meet growth goals.

"I just think people are really trying to stretch their dollar," said Drew, who also brokers lease deals for TJX Cos. Inc. - the parent company of T.J. Maxx, Marshall's and A.J. Wright. Dollar Tree reported record sales last quarter, exceeding the $1 billion mark and logging a 14.4-percent profit increase, said spokeswoman Chelle Davis. "We definitely think we are right for the times," Davis said. "Everyone likes to save money."

Dollar Tree shares closed up $1.76 yesterday to $38.07 on the Nasdaq and have risen steadily in value since January, thanks to shoppers like Sandra Harvey-White of Lansdowne, Delaware County. Harvey-White, 43, walked into a Lansdowne Dollar Tree yesterday to buy bottled water, but walked out with a shopping cart full of $1 buys - including boxes of Tastykake treats, frozen waffles, frozen pasta and Herr's potato chips.

"I always stop at the dollar store before I go to the supermarket," said the mental-health therapist, who has amped up her bargain shopping this year. "Because of the economy, I find myself making smaller trips - purchasing either what's on sale, what I can use, and not particularly the brands I used to buy."

On the clothing side of shopping, Nadine Phillips is just as devoted to the T.J. Maxx on City Avenue near Overbrook Park, in a strip near the Philadelphia and Montgomery County line. Phillips, 31, a nursing assistant who often works overtime, sneaked into the store between shifts yesterday in full nursing garb to pick up two bags of merchandise she had put on layaway. At $198, the buys were a bargain. Gone are the days, she said, of treating herself to designer duds at Macy's, which she would occasionally do before this year. Money is just too tight now. "At the other stores, I feel as though the stuff is overpriced," Phillips said. "But at T.J. Maxx, you can get the same stuff for less."

No economic slowdown on Internet

E-COMMERCE STRONG; SEARCH ADVERTISING DRIVES TREND
By Frank Davies
Mercury News Washington Bureau

WASHINGTON - Internet commerce continues its robust growth, defying a sluggish economy that's teetering on recession, Google's chief economist and several analysts said Friday.

Electronic commerce has grown about 22 percent in the past two years, said Hal Varian, the economist, who spoke at a forum on the state of the Internet economy at Google's new Washington office. Ed Garrubbo, chairman of the Electronic Retailing Association, said online sales jumped 17 percent in the first quarter of this year.

"The lesson here is that the economic slowdown is not an Internet slowdown," Varian said. "The Internet is looking pretty strong compared to other sectors."

Robert Atkinson, president of the Information Technology and Innovation Foundation, a non-partisan tech think tank, predicted continued growth for online commerce as high-speed connections increase and "the core technologies are becoming faster and cheaper."

"The absolute growth has been steady now for several years. The Internet economy is almost counter-recessional," Atkinson said. He added that comparisons with past slowdowns are difficult because this is the first downturn in which online commerce has played such a big role.

Garrubbo said traditional retailers such as Saks are experiencing a boost in online sales while other retail sales in stores are leveling off. The falling dollar is also helping online businesses attract foreign customers.

Research, he said 53 percent of all computer hardware and software sales take place online, along with 30 percent of all toys, video products and auto parts. One survey showed that two-thirds of all Internet users have bought products online.

The looming recession may actually contribute to e-commerce, Garrubbo said, because cautious consumers are doing more research and comparison shopping online before making a big purchase.

"A recession forces smarter decisions, and there's an increased desire to go online," Garrubbo said.

Michael Avon, a venture capitalist with Columbia Capital, said investments in Internet companies and start-ups have dropped off a little from last year. But he said the coming development of open platforms on mobile devices and the increasing use of social networks to sell more services and products - even $3 personalized ring tones - will create new business opportunities.

The key to much of the e-commerce boom has been the success of targeted search advertising. Google is able to closely measure consumer sentiment, Varian said, and showed data that indicated how search queries and clicks on ads reflected the downturn in real estate and the seasonal nature of car sales.

Because the impact of search advertising is more measurable than TV, radio and newspaper ads, and the coveted demographic group of twentysomethings use the Internet more than other media, spending on online advertising will start to catch up with TV ads, Avon predicted.

Atkinson sounded one cautionary note about the growth of e-commerce - that officials in Washington "still don't understand how much of a driving force information technology and the Internet are in the economy, responsible for a lot of growth."

He called personalized online ads "economic rocket fuel" that makes much of that growth possible. Atkinson warned that worthy efforts to protect consumer privacy online - now under discussion in the Federal Trade Commission and Congress - could have the unintended consequence of threatening that growth.