Consumer Confidential: Shopping, spending, driving

Here's your foolishly Friday roundup of consumer news from around the Web:

--Black Friday's already looking pretty dark, and that's a good thing for shoppers. As more details of Black Friday sales leak out from major retailers, Wal-Mart has confirmed that it will be offering deep discounts on toys and games, and selling much-wanted electronic goodies, such as high-def TVs, for way under usual prices. Scout around online for the best deals before getting up at the crack of dawn the day after Thanksgiving. Chances are, you'll be able to come up with a serious action plan for your shopping.

--And bring your cash, because it looks like fewer of us want to run up debt on our plastic this holiday season. The National Retail Federation says most of us will be favoring cash or debit cards this year, rather than splurging with credit cards and spending the rest of the year trying to pay down our balances. Let's call this one of the better lessons learned from the never-ending recession.

--And if you're in the mood to spend some money, Chrysler wants your business -- really. The formerly bankrupt carmaker is offering zero-percent financing or up to $4,000 in cash back for almost all its 2010 models. But don't dawdle: The sweeteners last only until Jan. 4.

-- David Lazarus

Wal-Mart reduces the cost of money transfers

Wal-Mart has had the giant scissors out lately, cutting the price of toys, books, DVDs, flat-screen TVs and the fixings for Thanksgiving dinner, among other things.

The company announced today that it's reducing the fees it charges to send money during the busy holiday season.

Consumers can send up to $200 anywhere in the U.S., or internationally, at a Wal-Mart MoneyCenter or customer service desk for $7. (It used to cost $11.) The transaction can be completed without a bank account or credit card, and Wal-Mart says funds are available in 10 minutes.

To send $200 from Los Angeles to Mexico, Western Union charges $14.99 for an immediate transfer and $9.99 for a next-day transfer, according to the company's website.

Sending money home is a big business that gets even bigger during the holiday season. Wal-Mart money transfers increase by 14% in the month of December, according to the retailer's internal research. Cash, after all, is always the right size and the right color.

-- Melissa Rohlin

Photo: Associated Press

Holiday shoppers to spend less on gift cards in favor of deals

Gift cards are again the most-requested present for the holidays, but don't be surprised if you receive a discounted sweater instead.

Shoppers are expected to pull back on buying the popular cards for friends and family this holiday season, according to the National Retail Federation.

The retail group's most recent survey found that on average, holiday shoppers plan to spend $139.91 on gift cards this year, a 5% drop from $147.33 last year. Total spending on gift cards is expected to reach $23.63 billion.

In another sign of the times, recipients can expect gift cards with lower monetary values. The average value per card this year will be $39.80, down from $40.54 last year, according to the survey, which polled 8,692 consumers from Nov. 3 to 10.

More than three-fourths of those surveyed (77.2%) plan to buy at least one gift card this holiday season.

-- Andrea Chang

Video game Call of Duty: Modern Warfare 2 gets Hollywood-scale launch

Modern Warfare 2 generated a record-setting $550 million in sales through Saturday, besting not only the previous mark for a video game but also for movies at the box office, entertainment reporter Ben Fritz writes today. That represents about 8 million units sold, according to estimates by publisher Activision Blizzard Inc. of Santa Monica.

"This provided the entire industry with a shot in the arm," said Colin Sebastian, an analyst at Lazard Capital Markets, who predicted Modern Warfare 2 would ultimately sell 15 million to 20 million units, exceeding $1 billion in revenue.

Call of Duty cost $40 million to $50 million to produce, people close to the project said, about as much as a mid-size film. Including marketing expenses and the cost of producing and distributing discs, the launch budget was $200 million, on par with a summer popcorn movie -- and extremely high for a video game.

Unleashing a Hollywood-scale opening for Modern Warfare 2 has been a priority for Activision Blizzard. The marketing and publicity campaign has featured all of the trappings of a modern movie effort, including ads and trailers designed by top advertising shops, a Twitter feed on which news was strategically disclosed, and a controversial scene involving airport terrorism that leaked onto YouTube and generated much media attention.

"My goal was to create a launch that would compare very favorably to the biggest box offices of all time," Activision Blizzard Chief Executive Bobby Kotick said.

Read the full story by clicking here

Photo: Alejandro Medina, 20, of Culver City, dons a jungle sniper ghillie suit as he takes in the festivities surrounding the release of the video game Call of Duty, Modern Warfare 2 at Best Buy. Robert Gauthier / Los Angeles Times

 

Warning issued on excessive lead in toys

California Atty. Gen. Jerry Brown issued a safety warning today, alleging that seven toys and children's products tested by the Center for Environmental Health this month contained leads levels far above the legal limit.

According to the center’s report, Disney Fairies Silvermist's Water Lily Necklace sold by Walgreens contains 22,000 parts per million of lead, more than 73 times the legal limit of 300 set forth by the Federal Consumer Product Safety Improvement Act.

Gary Foster, Disney's vice president of corporate communications, said the product, which is licensed by Disney and manufactured by Playmates Toys, was tested by Walgreens and Playmates Toys and complies with "all applicable state and federal consumer safety regulations." He added that the discrepancy between the two tests is being investigated.  

Fed proposes new rules to protect gift card users from fees

The Federal Reserve today proposed new rules that would protect gift card users from fees and other unexpected restrictions.

Gift cards have been the most-requested holiday item for the last several years, but many shoppers complain about the fine print, which can include hefty charges and quick expiration dates. According to the Fed, more than 95% of Americans have received or purchased gift cards.

Under the proposed rules, gift cards would not expire until at least five years from the purchase date. Service and inactivity fees could only be charged once a month and only after a card had been inactive for at least a year.

“Concerns have been raised regarding the amount of fees associated with gift cards, the expiration dates of gift cards and the adequacy of disclosures,” the Fed said.

“Consumers who do not use the value of the card within a short period of time may be surprised to find that the card has expired or that dormancy or service fees have reduced the value of the card. Even where fees or terms are disclosed on or with the card, the disclosures may not be clear and conspicuous.”

The Fed said the new provisions would be slated to take effect Aug. 22, 2010.

The proposal includes retail gift cards that can be used at a single merchant or affiliated group of merchants, and “network-branded” gift cards that can be redeemed at any store that accepts the card brand.

-- Andrea Chang

Photo: Nati Harnik / Associated Press

Wal-Mart, Wells Fargo trip stock market bulls

Wall Street's biggest ongoing worries -- the consumer and the banking system -- bubbled back up Wednesday, thwarting the stock market's march to new one-year highs.

It shouldn’t be news that retailers are expecting a difficult holiday season, but Wal-Mart Stores' warning to that effect was enough to spook some investors.

Wal-Mart slumped $1.07, or 2.1%, to $50.63 -- helping to fuel selling in the market overall in the last two hours of trading -- after a company executive cautioned about holiday expectations at an investor conference.

John Fleming, chief merchandising officer, said that consumers’ wallets "are challenged," and that the holiday season "is going to be tough, it is going to be late," according to Bloomberg News.

And as if to underscore the point, Wal-Mart announced a new round of price cuts, initially centered on groceries. (It probably wasn't a coincidence that Safeway Inc.'s shares fell 96 cents, or 4.1%, to $22.25.)

Investors seemed to ignore Wal-Mart CEO Mike Duke’s comments at the same conference that "no retail competitor . . . can deliver the kind of growth that Wal-Mart can over the next several years."

Wal-Mart isn’t acting like a growth stock this year: The shares are down 9.7% year to date and have mostly traded between $47 and $52 a share since early April. The Standard & Poor’s 500 index, by contrast, is up 19.7% this year.

Wal-Mart’s slide helped drag the S&P 500 down 9.66 points, or 0.9%, to 1,081.40, erasing an early rally that drove the index as high as 1,101.36 -- a new 52-week high. The Dow industrials fell below 10,000, losing 92.12 points, or 0.9%, to 9,949.36.

Losses in retail stocks were followed by heavier selling of financial stocks in the final hour of trading, after oft-quoted bank analyst Dick Bove at Rochdale Securities downgraded Wells Fargo & Co. stock to "sell" from "neutral," citing concern over the bank’s third-quarter earnings report.

Wells’ profit of $3.2 billion, or 56 cents a share, beat expectations, but Bove noted that the bank earned a stunning $3.6 billion from a hedging strategy related to its mortgage-servicing rights -- a gain that may be difficult or impossible to repeat. At the same time, problem loans "rose in every category despite the fact that the loan portfolio is shrinking," Bove wrote.

"It does not appear that the bank can sustain the third quarter’s results," he wrote.

Wells’ shares slid $1.56, or 5.1%, to $28.90. The stock is down 2% year to date.

-- Tom Petruno

Photo: Inside a Wal-Mart store. Credit: Joe Raedle / Getty Images

SoCal online retailer Newegg.com plans IPO

With the market for new stock offerings heating up, City of Industry-based online tech products retailer Newegg.com is looking to cash in.

The fast-growing company, which sells computers, software and consumer electronics, filed today to go public. In a preliminary prospectus, parent Newegg Inc. said it planned to raise as much as $175 million.

It didn’t list the expected stock price or the number of shares to be sold. JPMorgan, BofA Merrill Lynch and Citi will manage the deal.

The company was founded in 2001 by Fred Chang, a Taiwanese immigrant. Chang’s initial venture was a firm called ABS Computers, a mail-order computer company that made high-end PCs and gaming systems.

But as The Times noted in a profile of Newegg in 2007, "Customers indicated that they'd rather buy components and make their own computers. So even though the Internet bubble was deflating, Chang launched a new company and called it Newegg, to signify a fresh start."

Despite intense competition, the company’s sales have ballooned since 2001, to $2.1 billion in 2008. Newegg says it has been profitable from the start, earning $28.8 million last year.

Net income was $16.1 million in the first half of this year, up 23% from the same period in 2008.

Newegg says in the prospectus that it has a "loyal customer base consisting primarily of IT professionals, gamers, do-it-yourself technology enthusiasts, early technology adopters and consumer electronics enthusiasts."

Although the company built its reputation catering to tech geeks, its product lineup now goes well beyond computers, to digital cameras, cookware, electric shavers and other stuff.

The company in 2005 got financing from venture capital firm Insight Venture Partners, which also has backed Twitter.

Newegg said it planned to use the money it raises in the stock deal to expand its foreign sales, including in China, boost working capital and repay an $8.6-million loan from Chang.

The firm expects China to be "an important driver of our future growth." Chinese sales were $54.4 million in the first half of this year, about 5% of total sales.

-- Tom Petruno

Consumer spending: Climbing out of a deep hole

Today’s government report that retail sales rose 2.7% in August looks unambiguously good for the recession-is-ending camp.

The stock market loves it, as key indexes climb to new 2009 highs.

But under the surface the retail numbers suggest that many consumers remain either unable or unwilling to spend aggressively.

The 2.7% jump in August sales -- the biggest one-month rise in three years -- was powered by a 10.6% leap in car sales, which were spurred by the government’s "cash for clunkers" program, as expected.

Among 12 other broad retail categories tracked by the Commerce Department, the next largest percentage increase last month was in gasoline sales, which soared 5.1% as pump prices surged.

Higher spending on gasoline is forced spending for most people, not a sign of economic strength.

Still, although the outsized gains in car and gasoline sales skewed the overall number for August, sales were up 0.6% excluding cars and gas -- beating analysts’ forecast of flat results for that measure, according to Bloomberg News data.

Consumers felt better enough to boost spending on clothing by 2.4% in the month, (back-to-school shopping no doubt helped). Also, sporting goods sales climbed 2.3% and spending on electronics and appliances was up 1.1%.

But two big-ticket sales categories -- building materials and furniture -- showed declines of 1.2% and 1.6%, respectively.

The contraction in spending on building materials and furniture in August suggests that the boost in car sales robbed demand for other expensive goods. Undoubtedly, tight credit also is limiting consumers' ability to step up spending on big-ticket stuff.

One other point to remember on retail results: Sales remain seriously depressed compared with where they were just a year ago.

Overall sales in August were 5.3% below their level of August 2008. Clothing sales were down 5.1% from a year earlier, electronics and appliances were off 10.4%, and furniture sales were down 12.8%.

The economy is climbing out of the hole, but it’s a deep hole.

-- Tom Petruno

Photo: Clunker trade-ins on a lot in Fairfield, Calif., last month. Credit: Justin Sullivan / Getty Images

Starbucks gambles that price hikes won't leave customers cold

Investors know that businesses can’t cost-cut their way back to prosperity and rising earnings. So what Wall Street most wants to see from companies in the second half of this year is revenue growth.

But the old-fashioned way of boosting revenue -- by raising prices -- seems out of the question in this economy.

Yet Starbucks Corp. now is taking that gamble: The coffee company confirmed today that it will be rolling out price increases on some drinks nationwide in the next few months -- along with some price cuts -- after testing the changes in select markets since spring.

From Bloomberg News:

Starbucks Corp., the world’s largest coffee-shop operator, said it will raise prices on some drinks, including frappuccinos and caramel macchiatos, by as much as 30 cents starting today.

The increases average about 10 cents to 15 cents per beverage, and will also apply to extra shots of espresso or flavors, Valerie O’Neil, a spokeswoman for the Seattle-based company, said.

Prices on lattes, cappuccinos and brewed coffee will decrease 5 cents to 15 cents, the first price cuts the company has made, she said.

The company is "fine-tuning our pricing in select markets to better reflect geographic and cost considerations," O’Neil said.

Starbucks’ revenue has declined year-over-year for the last three quarters as many consumers have hacked spending in the recession. Sales were down 6.6% in the third quarter, to $2.4 billion.

Sharon Zackfia, who follows Starbucks for investment firm William Blair & Co. in Chicago, said the net effect of the price increases and reductions may be neutral for revenue in the near term. But she said the company’s strategy of pricing its drinks market-by-market -- to be more competitive with its main rivals -- could help the chain boost overall traffic.

Although Starbucks still has a high-end image, the company’s "price premium" on most drinks now "is the lowest it has ever been," Zackfia said.

The company’s shares didn’t show much of a reaction to the pricing leak today. The stock closed up 10 cents to $19.22. But the shares have recovered sharply from their multi-year low of $7.17 reached Nov. 20., 2008.

From the Wall Street Journal:

Starbucks first disclosed in April that it would adjust its prices, but it didn't give specifics. In recent days, memos went to baristas across the U.S. advising them to "expect customers to be sensitive to pricing changes in this economic climate," according to one memo reviewed by the Journal.

The memo instructs baristas to tell customers that price increases reflect the increased cost of doing business and that price cuts are meant to show that the Seattle-based coffee giant is looking for ways to provide value.

-- Tom Petruno

Photo credit: Lisa Poole / Associated Press