No Stimulus From Stimulus Checks

Retailers try to lure shoppers helped by stimulus checks.

You may have to wait until May to see your economic stimulus check, but some retailers already have their sights set on how you will spend it.

Both Kroger Co., one of the country's largest grocers, and department store operator Sears Holdings Corp. are already offering discounts and freebies to consumers who turn the rebate checks into gift cards.

Other retailers like Home Depot Inc. are launching advertising campaigns to helpfully suggest ways to spend those extra dollars.

"Certainly it does seem like retailers are planning for a battle on where to spend that check," said Chris Donnelly, a partner in the retail practice at consulting group Accenture. "We're going to see a lot of competition from a promotional standpoint among retailers really trying to lay claim to that."

The checks, set to arrive in mailboxes and bank accounts beginning next month, are part of an $168 billion economic stimulus plan passed by Congress. Under the plan, individuals who have filed their tax returns for the year can receive up to $600 and families can get up to $1,200.

The checks are meant to provide a cash cushion for strapped consumers, as well as a cash infusion for retailers struggling to grow sales in a weak economy where shoppers are increasingly cutting back.

Retailers who cater to consumers' needs rather than wants may see the most benefit, said Morningstar analyst Mitchell Corwin.

"It's your grocery bill, it's your electric bill, it's your fuel bill," Corwin said. "Just for everyday type purchases, consumers are facing higher prices today than they ever have."

If consumers use the checks to buy the necessities, that could be great news for Kroger. The company said Wednesday they will offer shoppers free groceries through a gift card program. It works like this: if a customer turns his $300 tax refund or economic stimulus check for a Kroger gift card, he will receive an additional $30 on the new card. A $600 check would garner another $60 dollars and a $1,200 check would warrant another $120 to spend in groceries.

Some also coordinated marketing campaigns around the program. Online travel company Expedia Inc., for example, launched a campaign called "The Great Tax Rebate Vacation."

Great News For Kroger?

People have to eat. They are going to keep eating and now Kroger is effectively offering 10% off on food, something consumers were going to keep buying anyway. Where's the stimulus in that?

There are millions of homes headed for foreclosure over the next year or two. What is $1,200 going to do above and beyond providing one month's rent?

Seeking a Slice of Your Rebate

Nonetheless everyone is Seeking a Slice of Your Rebate.

Yesterday, as Americans were rushing to pay their taxes, Sears was thinking about next month's promised rebates -- and, like other retailers, hoping for a share.

From May 14 to July 19, Sears Holdings will give a 10 percent bonus to anyone who shows up at a Sears or Kmart cash register to buy a gift card with a stimulus check.

Last month, Pizza Hut promised to make "a little bit of dough" go "a long way" by offering a one-topping Pizza Mia for $5 with the purchase of three or more pies.

In January, Wal-Mart launched an "economic stimulus plan," cutting prices 10 to 30 percent on certain items.

"I think you'll see every retailer try everything they can to reach into consumers' pocketbooks," said C. Britt Beemer, chairman and founder of America's Research Group, a consumer behavior marketing firm in Charleston, S.C.

That was the point, after all. The $168 billion stimulus package was initiated by President Bush and approved by Congress to get Americans spending. But recent surveys have shown that most people would rather use their rebates to pay down debt.

"The consumer is feeling a lot of pressure from credit card companies to get their credit bills under control," Beemer said.

Retailers have their own message: Spend it.

"We understand the situation they're in given the state of the economy," said Kevin Brown, vice president of marketing services for Sears Holdings. "We have them covered, and that check is going to go a lot of further with us."

Where is the Competitive Advantage?

If everyone wants a slice of the pie and are all dropping prices to get it, exactly how does this stimulate anything? Retailers competing for slices might be hurting their own profits.

Most consumers will just buy what they were going to buy anyway, and now they will be paying less for it. Maybe there will be a .25 to .5 increase in GDP because of it, but that is it. Then what? Where are the jobs coming from to support this economy?

Job Losses Pile Up

Missed in Friday's "Bottom is Not In Rally" (see Digging Into Citigroup's Numbers) Citigroup and AT&T are laying off huge numbers of workers.

AT&T to cut about 4,600 jobs, sees $374 million 1Q charge

NEW YORK - AT&T Inc. on Friday said it plans to cut about 4,600 jobs, or 1.5 percent of its work force, to shift resources to growing parts of its business.

The nation's largest telecommunications provider said most of the layoffs will be among managers, particularly in wireline operations, including local phone service and service for large corporate customers. Jobs in corporate functions in like finance will also be cut.

"Even with the reductions announced today, we expect our head count overall to remain stable this year as we hire additional employees to support growth areas like wireless and TV," said spokesman Michael Coe.

So AT&T is firing managers and hiring in support areas. Is that stimulative?

Citigroup to cut 9,000 jobs

After posting a $5.1 billion loss Citigroup to cut 9,000 jobs.

Citigroup posted its second straight quarterly loss on Friday, hurt by more than $16 billion of write-downs and costs related to credit losses, and said it will cut another 9,000 jobs

The job cuts are in addition to 4,200 announced in the previous quarter. Citigroup said it ended March with about 369,000 employees.

4,000 Job Cuts at Merrill Lynch

Things are not exactly going gangbusters at Merrill Lynch either. Merrill Lynchs swings to 1Q loss, revenue declines; plans to cut 4,000 jobs.

Merrill Lynch (MER) reported a first-quarter net loss from continuing operations of $1.97 billion, or $2.20 a share, compared with earnings of $2.03 billion, or $2.12 a share in the same period a year ago.

Merrill said it plans to cut its workforce by 4,000 employees, or 10%, from year-end 2007 levels. The broker expects to record a $350 million charge in the second quarter related to the job cuts, which it expects to lead to cost savings of $800 million on an annualized basis.

Wall Street Firms Cut 34,000 Jobs

Last month Bloomberg reported Wall Street Firms Cut 34,000 Jobs, Most Since 2001 Dot-Com Bust. The details are interesting. Let's take a look.

Wall Street banks hit by mortgage losses and writedowns have cut more than 34,000 jobs in the past nine months, the most since the dot-com boom fizzled in 2001.

Citigroup Inc., Lehman Brothers Holdings Inc. and Morgan Stanley are among the firms that have disclosed headcount reductions so far. After the Internet bubble burst, 39,800 jobs were eliminated during the same period; the number climbed to 90,000 in the next two years, according to the Securities Industry and Financial Markets Association.

"This crisis is much worse than 2001 and we don't know how long it's going to last," said Jo Bennett, a partner at executive search firm Battalia Winston International in New York. Job cuts "could be more than 100,000 in a few years."

My Comment: The job cuts announced above at Merrill Lynch and Citigroup are on top of the 34,000 cited in this article. We are well on the way to 100,000 now and no guarantee we stop there.

This year, banks including Lehman, Citigroup and Morgan Stanley have been winnowing out employees in fixed income trading, securitization, asset management and investment banking. Administrative and technology staff have also been let go. So far, Citigroup has eliminated 1.7 percent of its workforce, while Lehman has chopped 18 percent. Morgan Stanley has cut 6.2 percent, and Merrill has eliminated 4.5 percent.

"This is filtering down to the vendor," Branthover said. "The firms Wall Street was using are also feeling the pain.".

My Comment: The trickle down theory was a miserable failure when it came to wages. However, trickle down appears to be a huge success when it comes to job losses.

Even the black cars that shuttle bankers and traders home from their Manhattan offices are seeing demand for their services dwindle, and the firms may have to fire some drivers, said Battalia Winston's Bennett.

My Comment: Mercy! Traders can no longer afford or no longer want to take limos. This is a truly sad state of affairs. Where did all those bonuses go anyway?

While JPMorgan hasn't said how many Bear Stearns employees may lose their jobs, half of the 14,000 people at the company may be let go, estimates Boyden's Branthover. The two firms have overlapping businesses and JPMorgan, the third-largest U.S. bank by assets, may shut down some Bear Stearns units, she said.

My Comment: Prepare to add another 7,000 jobs to the total.

Some firms haven't fully disclosed their job cuts because they don't want to appear financially weak, according to Battalia Winston's Bennett. "They're all dribbling people out the door, so the numbers don't show the true extent of the problem yet," said Bennett.

My Comment: This is interesting: "Dribble Out" is being used to mask "Trickle Down". I sure hope someone got a well deserved bonus for this plan. It's truly inspiring.

Here's the deal. Consumers are tapped out. Confidence is in the gutter. Much of the stimulus will be used to pay down debt. Most of the rest of it will be to buy necessities that people were going to buy anyway. That is the easily seen, or at least should be easily seen.

The unseen is that handing out free money cheapens the US dollar and contributes to rising gas prices. Also unseen (at least by the analysis in the articles above) is that competition for those consumer dollars may actually end up hurting retailer profits.

In the meantime massive layoffs are being announced, while others are playing the "Dribble Out" game hoping to disguise what they are doing. And amazingly, bulls are cheering the "Bottom Is In" based on a lack of understanding as to how bad things are, with virtually no idea how much worse they are going to get.

Indeed the Shopping Center Economic Model Is History even as every effort is being made to keep it alive.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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