Consumer gilded age crashes down

Store Closures May Mark End of Era of Rampant American Consumerism
March 8, 2009 3:42:08 PM PDT
As Circuit City stores disappear from the American landscape -- the company shuttered more than 500 stores on Sunday -- some economists say the end of the chain could also signify the end of a free-spending consumer culture. Circuit City is the latest lesson in how supply and demand can fuel an economic spiral.

It works like this. Easy credit leads to a housing boom ... and bust. Troubled banks offer less credit. Businesses that rely on credit to operate cut jobs. Worried workers put off buying big-screen TVs, iPods and computers. Sales slump. And, without the credit to see them through, once-successful chains close their doors for good. That puts more workers on the street and the cycle continues.

"The closing of Circuit City is emblematic of a broader scaling back of the retail sector that we are going to see," Harvard University economist Kenneth Rogoff told ABC News. "As we scale back there is less business. There will still be a lot but there is less. I think you are going to have to see more stores closing more jobs being lost in the retail sector. People buying less."

The closures mark more than the end of a chain, or even an industry, he added, calling them a sign of the times -- frugal times -- to come.

"We have come to an end of an era, this Gilded Age where we were spending and consuming and we had all of these fancy financials firms that seemed like they were perpetual money machine and it has crashed to an end," Rogoff said.

That era has arrived for Adriana Niepa of Silver Spring, Md. The hotel marketing director is buying fewer groceries, eating out less and cutting back on vacations.

"For the long haul, I think it will change my spending habits," Niepa said. "Because everything is changing. Things that were secure or felt secure now feels like a rollercoaster ride."

She's not alone.

"Well I used to buy wine," an Arlington, Va., school teacher said after seeking bargains in a local Circuit City store on its final weekend. "I don't buy wine anymore."

Another Circuit City shopper, Judie Wolford, agreed.

"I have a pretty good job," she said. "I don't know if I'll have it next week."

Many survivors of the Great Depression remained frugal for life. In the same way, the economy has transformed Americans' conspicuously consuming ways for good Kit Yarrow, a consumer psychologist at Golden Gate University in San Francisco, told ABC News.

"I actually think this will be a permanent shift in the way that Americans spend money and that is because I think that we are seeing the pendulum move back from a period of gluttony into a period of more considered consumption," she said. "I think the teenagers and below are going to have it hard ? the really young kids will have very different values then people in their 20's today."

There are winners in a more frugal economy. Fewer consumers are buying Gucci and Cartier, but sales at McDonald's and WalMart are on the rise, and discount retailer Target is planning on opening up 27 new stores.

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