Even before the terrorist attacks of September 11th the outlook for this year's holiday season was not good. Based on credit card usage patterns and account data through the summer, it appears that consumer appetite for spending was already slowing in the face of an impending recession. There is a consensus that consumer spending, which makes up 66% of the American economy, hit the brakes in June. Most analysts agree that business spending hit the brakes in January, after downshifting in the last few months of 2000. The events of September 11th only accelerated the inevitable.

Consumer spending for this year's holiday season will be very sluggish at best. On top of the underlying economic reasons, such as rapidly rising unemployment, consumers are not in the mood to travel or open mail. The holiday spirit will unfortunately be dampened by the concern over suicide bombers and anthrax laced mail. Furthermore Americans are generally tapped out when it comes to credit card debt. It is likely this holiday spending will be the worst in more than a decade. Look for holiday spending to rise no more than 2.0% this year.

Despite all the economic realities, consumer surveys still say that consumers will spend the same or more this year. The National Retail Federation's "2001 Consumer Holiday Outlook" survey shows consumers plan to spend an average of $940 per household this holiday season on gifts for family and friends, decorations, greeting cards, and food or candy. NRF is predicting 2001 holiday retail sales, excluding travel related expenses, to increase 2.5% to 3.0%.

Shortly after the events of September 11th, about 90% of consumers indicated they will not cut back on their buying plans based on a survey conducted by DRI-WEFA. Another survey by BIGresearch, found that 70% of the respondents plan to spend about the same as last year on their holiday purchases. However, the survey did find that roughly one-third of respondents will spend less money in upscale specialty stores, and that one in five will shop less at the traditional types of department stores.

All the bad economic news is somewhat good news for online retailers. Americans are more active in monitoring Web sites for the latest news developments. This higher level of activity is spilling over to other Web sites from personal financial Web sites to retail Web sites.

NextCard recently found that nearly one in five shoppers will spend between $101 and $250 for their online holiday purchases. Nineteen percent will spend between $250 or more for online gifts this year. Almost one quarter will limit their online spending to $100 or less. Almost half cite the ability to shop whenever they want as the primary reason for shopping online. Avoiding crowds at stores was a distant second and saving time was third. Saving money was a very low priority with only 8% citing this as their primary reason. According to the NextCard survey, nearly half of all online shoppers will shop at Amazon.com.

ANTHRAX IMPACT

The anthrax mail scare is driving more Americans to explore paying credit card bills online. Furthermore, reluctance to open junk mail may further depress direct mail response rates for credit card offers.

By the end of this year, Gartner forecasts that 32 million Americans will view credit cards and other statements online, a 60% increase over the 20 million who did so at the end of 2000. Gartner expects the number of consumers viewing bills electronically to reach 64 million by year-end 2003. Although the trend is partly attributable to marketing campaigns and other factors, Gartner clients have reported a 20% increase in electronic bill presentment enrollment since the anthrax scare was first reported.

Direct mail credit card solicitations were running at a record pace this year until the September 11th events. Through the first half of this year, solicitations grew by more than 50%. Since the terrorist attacks and the anthrax mail scare, the number of solicitations has dropped by an estimated 60%. It was inevitable that card issuers would pull back on direct mail card campaigns since response rates for the first six months of this year were just 0.4%, according to data tracked by BAIGlobal. But the sensitivity to consumer sentiment and the disruption to the mail system has pushed card issuers to accelerate the pull-back. By contrast, response rates or click rates for credit card advertisements on the Web have been rising steadily this year, topping 2.0% at some Web sites.

The anthrax scare has directly affected some credit card issuers. In October, Providian received two Seattle-postmarked envelopes with a yellowish, grainy substance that had leaked from one of the envelopes and partially coated the other. Ten Providian employees were decontaminated and treated at an Oakland, California hospital with antibiotics. The substance turned out not to be anthrax. Swedish card holders of American Express cards were concerned last month after receiving plastic snowflakes in the mail. AmEx sent out about 40,000 direct mail pieces to its Swedish customers as part of a Christmas promotion. The mailing suggested "consumers spread the snowflakes out". The mailing prompted phone calls from angry customers. AmEx has since issued letters of apology to all the recipients of the mailing.

NEW CARDS

Despite the funky economy some major new credit cards have appeared this year. Target is now taking applications for its new Target smart VISA, issued by Retailers National Bank, an affiliate of the retailer. The launch is significant in both the potential number of smart cards to be issued and the number of smart card terminals to be deployed. Target announced in June it will deploy new smart card terminals in all 990 Target Stores by the spring of 2002. Target currently has 36.4 million retail credit card and plans to convert millions of these accounts to smart VISA cards. Target also expects to expand the functionality of its current rewards program offered under the Target Guest Card program with the new smart card. The company currently operates 1,320 stores in 46 states including 990 Target stores, 266 Mervyn's stores and 64 Marshall Field's stores.

Nine years after the launch the highly successful General Motors MasterCard, and three years after the termination of the Ford/Citibank VISA card, Chrysler is entering the co-branded rewards card market. DaimlerChrysler is launching a suite of Rewards VISA cards including the Chrysler Rewards VISA, Jeep Rewards VISA, and the Dodge Rewards VISA. DaimlerChrysler Services will offer cards on a pre-approved basis to approximately five million owners throughout the USA, as well as through credit card applications available at dealerships. Under the programs, cardholders will earn five points for each dollar spent at Chrysler dealerships, and one point for all other purchases. As a special introductory promotion, cardholders will be able to earn three points for every dollar charged at Exxon or Mobil stations. Redemption value per point is one cent. Rewards may be redeemed for a broad range of services from oil changes to alignments to discounts on new vehicle purchases. Unlike the GM MasterCard program, there are no annual limitations on the amount of points accumulated or restrictions on the amount of redemptions that can be used on certain products. The Chrysler points will be valid for five years. Interest rates will range from prime +8% to prime +12%. A four month 3.9% intro rate will be offered.

GIFT CARDS

Gift cards have been growing more popular in the U.S. as 45% of consumers used a gift card during the past year. This year the number is expected to soar more.

Hooters of America is offering a gift card program that enables customers to choose from ten collectable cards featuring the Hooters Girls. Hooters electronic gift cards can be used at any location for all restaurant charges and will include a pre-paid amount of credit. Atlanta-based Hooters of America is an operator of over 280 Hooters locations in 41 states and twelve countries.

Cleveland-based KeyBank has unveiled a new prepaid MasterCard gift card called: Key Possibilities. The new card is available for immediate purchase to customers at 900 bank branches. The card is available for a fee of $3.95 per card and is available in four preloaded denominations: $25, $50, $75 and $100. The Key Possibilities card can be used at all MasterCard acceptance locations including MasterCard/Maestro/MAC/STAR/Cirrus ATMs.

Music retailer Sam Goody is offering a special holiday-themed gift card this year, featuring an image from the movie, "The Grinch," starring Jim Carrey. The cards, which are reloadable, can be used at all Sam Goody stores and can also be used online at SamGoody.com. Gift cards can be purchased at any Sam Goody location or at the Web site.