Retailers May Escape an Iraq War Backlash

May 01, 2003 9:30 PM  By

WHEN U.S. TOMAHAWK CRUISE MISSILES rained from the skies over Baghdad in the early morning hours of March 20, retail companies braced for the worst after winter blizzards, fears of terrorism, and rising unemployment had conspired to pummel sales for the past several months.

After the Persian Gulf war in 1991 and the terrorist attacks on on the United States on Sept. 11, 2001, retailers experienced an immediate downturn in sales, but this time around, it seems that consumers were psychologically ready for war with Iraq, given the almost daily warnings from both sides of the conflict.

“We think that the consumer awareness of the conflict was kind of built in ahead of time,” says Jason Milch, spokesman for Chicago-based retail intelligence provider ShopperTrak. “One of the reasons was that we could see retail weakness would not be the war as much as the Easter shift this year, because Easter last year was March 31, and this year is not until April 20.”

Ellen Tolley, spokeswoman for the Washington, DC-based National Retail Federation, also believes merchants caught a break this time around. “I don’t think retail sales were as affected by this war as they were after, say, Sept. 11. We saw consumers staying at home for the first 48 hours or so after the war began — known as the ‘CNN effect.’ As time went by, we returned to our normal schedules.”

Tolley tries to find the silver lining in depressed weather-battered February sales: “People who couldn’t get out and buy in February might go out and buy in March,” she says. But Jay McIntosh, who runs the retail and consumer products practice of New York City-based consulting firm Gap Gemini Ernst & Young, disagrees:

“I wouldn’t call it the most likely scenario.”

McIntosh says the war in Iraq will affect U.S. inflation, interest rates, corporate spending, unemployment, and thus consumer spending. “So I think that going forward, the war will have an indirect effect on retail sales by affecting other elements of the economy.”