A different story on credit this Christmas

ATLANTA — Could this be the year of the Grinch who stole Christmas credit?

Many indicators are showing it could be.

As part of the fallout from the credit crunch that already has hammered the mortgage industry and corporate lending, banks are constricting the credit card offers that retailers can make — right when consumers are cutting back.

Some Atlanta shoppers already feel like they were visited by the Grinch. About a dozen shoppers interviewed recently said they would use cash for Christmas gifts. Or if they used credit cards, they would use them to earn reward points and pay off the balance immediately.

Tom Burns, 40, who lives in Atlanta and works in real estate, plans to pay cash for all Christmas gifts. "That way if you don't got it, you don't spend it," he said outside the Trader Joe's in Midtown. He is married with three young girls.

"If I had to guess, credit card spending would go down this year," said Ellen Davis, vice president of the National Retail Federation in Washington, which says Americans spent $470.4 billion on the holidays last year.

"The whole issue of credit is going to alter retail as we know it in America," said Britt Beemer of America's Research Group. His Charlotte, S.C., firm polls consumers on a weekly basis to track spending trends.

The situation is so bad that last week Treasury Secretary Henry Paulson added consumer credit cards to the list of ailments he's trying to fix with the $700 billion federal bailout package.

Overall, Beemer believes retail sales could decline by 1 percent, his first negative prediction in 23 years. He has correctly predicted Christmas retail sales in 16 of the past 17 years. And retailers with big-ticket goods could suffer as much as 8 percent in sales declines over the holidays, Beemer predicted.

Electronics retailer Best Buy, for example, predicted last week that holiday sales could decline as much as 15 percent. End of the year sales usually make up more than half of the retailer's annual profit.

And Atlanta-based Home Depot may be one of the hardest hit by the credit crunch. Earlier this year, Home Depot retooled its agreement with credit card issuer Citibank to reduce exposure to debt gone sour.

"The bad thing about both Home Depot and Lowe's is that they've lived and died on consumers spending $299 or more and getting zero interest for 12 months," Beemer explained.

Home Depot spokesman Ron DeFeo wouldn't give details about the company's credit strategy for the holidays. The company's quarterly earnings will be released Tuesday and the company is in a "quiet period," he said.

But in the previous two quarters, Home Depot offered fewer credit card promotions, had fewer accounts opened, and saw fewer transactions charged on Home Depot cards. In 2007, about $23 billion was rung up on Home Depot credit cards, or a third of the chain's sales.

Big box stores aren't the only ones that will feel the pain.

"The category that is down unfortunately is who our core customer is," said Eric Joy, the general manager and co-owner of Georgia Home Theater, a family owned retailer with a showroom on Cobb Parkway in Smyrna. The company installs everything for a home theater, from lighting to big screen TVs. Projects cost from $10,000 to half a million dollars, he said. Year-to-date, Joy said, sales are flat.

Many retailers are getting creative to bring in customers. Joy, for example, asked 14 manufacturers to demo their products last Thursday evening, then invited customers to experience a "mini-trade show."

Christmas charging on decline

Still, if "stingy" is the new holiday buzzword, it's because consumers — right along with lenders — are changing their outlook on credit.

"I had a credit card, but I paid it off," said Darius Baker, 27, of Norcross, interviewed outside the Best Buy store in the Edgewood Retail District in Atlanta. "That's because I was using it when I shouldn't have been."

He plans to pay cash for his Christmas gifts and has been saving to do that.

Alan Benear, 53, a purchasing manager in Atlanta, said he doesn't like the high interest rates the department stores charge. Because of fear of default, many retail credit cards carry interest rates as high as 24 percent. (The Macy's card interest rate is 22.9 percent.)

"Now that department stores accept Visa and MasterCard, I haven't used store cards in years," said Benear. Instead, he plans to pay for gifts with a Chase MasterCard to get the reward points. He pays off the balance each month, he said.

Lanchi Nguyen, 34, a public health and law student at Emory University, echoed his view. She said she'll use her American Express card to get hotel points and her Visa card to get points with AirTran Airways. "I pay it off every month so there's no interest. "Another indicator that credit will be used less this year is that direct-mail credit card offers have been declining, according to Synovate Mail Monitor. In the second quarter, HSBC sent 54 percent fewer credit offers, followed by Citibank, Home Depot's credit card provider, with a 45 percent decrease and Discover with a 33 percent decline, Synovate reported.

Why Christmas credit matters.

Retail credit takes on greater importance during the holidays, because the final two months of the year are when many retailers ring up as much as 40 percent of their annual revenue, according to America's Research Group. About a third of those transactions are charged.

That's the case for Mori Luggage & Gifts, a family owned business based in Atlanta with 28 outposts in five states. The chain rings up about $25 million in sales annually.

"Christmas is the most important season of the year — we do 40 percent of our annual sales between November and December," said John Mori, president of the chain. "And approximately 75 percent of our sales are paid for by credit cards."

Mori said sales have been down slightly this fall.The company is about to send out 500,000 catalogs, and Internet sales are up 10 percent this year.

"That's a bright spot," he said, of moriluggage.com. He also sees good news in lower gas prices. That "has to help to some degree," he said.

Credit not as friendly.

For those who do want to finance big purchases, the experts say to expect less friendly credit terms. No-interest credit offers may be limited to 6 months instead of 12, or require monthly or down payments.

Best Buy is offering 18 months no-interest on purchases of $499 or more. But there are more strings attached, like a required minimum monthly payment of $10, or else interest (of about 21 percent) starts to accrue.

Rachel Tobin Ramos writes for The Atlanta Journal-Constitution. Cox news researcher Nisa Asokan contributed to this article.