The heightening of violence in the Middle East in July between Israel and Hezbollah may have been the last straw for already nervous American consumers.

Within days of the violence breaking out in the Middle East both Wal-Mart Stores and Target lowered their estimates for July same-store sales projections, and retail stocks across the board took a tumble.

It seems the event was the last straw for jittery consumers whose confidence has been battered by a combination of wars in Afghanistan and Iraq, Hurricane Katrina, the tsunami in Indonesia, rising oil prices, signs of the end of the housing bubble and an increasing wealth gap.

Retailers have quietly been preparing for a slowdown for months, in spite of posting healthy sales throughout the first half of the year. In one of the more ominous signs of their worries, many retailers scaled back on summer staffing plans in anticipation of consumers pulling back on spending.

The slowdown in sales is exactly inline with WSL Strategic Retail's biannual “How America Shops” report, which was published earlier this year. In it, Wendy Liebmann, president of WSL Marketing Inc., says the company's research — compiled through interviews with nearly 1,000 consumers — showed diminishing consumer confidence. This survey was the first in the firm's history to reveal that none of the 24 retail channels it monitors increased market share over the previous study. So shocked by the results, Liebmann's team conducted the study twice.

Retail retrenchment

“There's been a retrenchment,” Liebmann says. “Over the past 10 years there had been very little differentiation when looking across channels. Everyone shopped everywhere, it was a sort of shopping democracy. … Now what we're seeing is that the people with higher incomes — above $75,000 — are shopping everywhere. And people below that have become very price conscious. So basically if you don't supersize or specialize, then you're floundering right now.”

(For more of Liebmann's insights, see the Expert Q&A on p. 64.)

“There's less cash in the hands of consumers, so much slower growth in consumer spending is expected next year,” adds Ira Kalish, director of Customer Business at Deloitte Research. Deloitte recently published its Research Leading Index of Consumer Spending, and found similar results.

Low interest rates not only provided consumers discretionary cash, it fueled a housing boom that created lots of construction-related jobs and services, he says.

“Now we have a building slowdown that could portend the next recession,” Kalish says.

One silver lining in the darkening economic forecast, he says, “ is if the economy slows, the declining demand for energy will put downward pressure on gas prices, partially offsetting other negative factors by putting a little extra money in people's pockets.”

Yet despite the ominous signs, retail developers and owners don't seem to be shifting strategies. “I'm in the trenches every day, and I'm not seeing any signs of pull back in retail expansion or development,” says Scott Kaplan, senior managing director of Retail in the Western Region for CB Richard Ellis. “I'd be an ostrich if I didn't say I'm not paying attention to warning signs.”

Kaplan points out that there have been 16 consecutive increases in interest rates by the Federal Reserve, a slowdown in housing nationally, high construction costs and gas prices and low confidence in the Bush Administration.

Teen Titan

Phoenix-based Westcor Shopping Centers is using an innovative approach to increase foot traffic at its stores — the company has assembled a panel of style experts from the general population to tell prospective customers the latest trends and where to find up-to-date merchandise. The latest addition to the four-person panel is a 15-year-old named Carly Scholl who is an expert on “all things teen.” Scholl, a daughter of a Westcor employee, was hired to provide a teen perspective on fashion. She receives a small salary for her services. Shoppers can contact Scholl directly through Westcor's Web site at www.westcor.com.

Child's Play

Simon Property Group is raising a new generation of shoppers with its Simon Kidgits Club, a program aimed at marketing the mall as a family destination. The Kidgits Club targets children ages two through 12 with entertainment and education events. The latest among the Kidgits Club's programs is Feelin' Groovy — Radio Disney-sponsored gatherings that feature entertainment by characters like the Teenage Mutant Ninja Turtles and the Winx Club Fairies. The events will be held at 63 of Simon's malls.

Retail Idol

CBL & Associates Properties Inc. conducted a competition — Piedmont Retail Business Challenge — in an attempt to groom new retail concepts. The company awarded $200,000 packages to three winners. The contest took place at three of CBL's North Carolina properties: Hanes Mall in Winston-Salem, Randolph Mall in Asheboro and Oak Hollow Mall in High Point. About 220 people entered, and were judged on creativity, marketability and other categories. The winners included Dana Suggs, for her Butter Up store, Deborah Bain, for Kitchens & Candles and Keith Gallimore for his FlounderN concept.

Battle Lines

The Westfield Group gained notoriety recently when it became known that the company was trying to stop a community improvement project in Renton, Wash. The dispute involves the Landing, a 68-acre, mixed-use development being built by Dallas-based Harvest Partners. The Landing's 800,000-square-feet of planned retail could take business away from the Westfield's 1.3-million-square-foot Southcenter Mall in nearby Tukwila. Westfield is reportedly financing a non-profit community group called Alliance for the South End, which claims The Landing will negatively affect the environment and create traffic problems. The Alliance has filed an appeal with the City of Renton in May to change the project's master-plan. The case will go before a local hearing examiner in September. Westfield, who is paying the group's legal fees, says that it has an obligation to challenge rival projects.