Holiday Consumers Turn to Cash Instead of Credit Cards

With only 37 shopping days remaining until Christmas, economists and analysts are projecting a very soft holiday spending season. Considering over one-half of all retail revenue for the year occurs between Thanksgiving and Christmas, any hiccup in spending patterns could have an unprecedented negative effect on retailers quarterly earnings.

The reason for concern isn’t so much that the spending appetite has subsided; it’s because shoppers do not plan on using credit cards this season (or are choosing not to). Cash is king, and if would-be shoppers are limited in that department, there could be many retailers wondering if the Grinch stole Christmas.

According to a survey released by the National Retail Federation (NRF) yesterday, the number of U.S. shoppers planning to use credit cards this holiday season is expected to decline 10% this year, making up 28.3% of shoppers versus 31.5% last year. Cash as a payment method is making up the difference, with a quarter of overall shoppers expecting to only use their dollars, up 9.1% from the 2008 holiday shopping season.

“With many holiday shoppers focused on spending within their limits, it’s no surprise that fewer people will be relying on credit cards this year,” said Tracy Mullin, chief executive of the National Retail Federation, in a statement.

In addition to a curb in spending habits, shoppers and retailers have to deal with other ancillary factors that will turn sentiment negative: a 10.2% unemployment rate and a jobless recovery are not helping to stimulate a jolly mood for the public.

Poor economic factors are contributing to a push by retailers to help incite shoppers to their stores. There have already been several pre-black Friday sales events by major retailers to help motivate the public into opening their wallets, and many more are widely expected.

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“If the strong promotions and sales we’ve seen the last few weeks are any indication of what retailers are planning, shopping on a budget this year will not be a problem,” added NRF CEO Mullin.

The survey also discovered that 42.5% of holiday shoppers plan to use primarily debit or check cards, which is a 2.5% increase from last year. It also noted that 52.4% of consumers had yet to begin their holiday shopping.

The changes for shoppers aren’t completely isolated to the poor economy; a key factor is the ability to obtain credit. As banks tighten lending standards, consumers will find it challenging to access lines of credit for gifts; thus resulting in potential difficult times for retailers.

As CNNMoney reports:

Federal Reserve statistics show that revolving credit, which includes U.S.credit card debt, tumbled $9.9 billion to $898.9 billion in September from the previous month. That’s a 10 percent decrease from the previous year. The pullback derives from both card companies reducing customer’s credit lines and from customers seeking to shed their debt amid the weak economy.