This holiday season, cash-flush Bay Area consumers are likely to shop far more merrily than budget-conscious shoppers in much of the rest of the country who are still reeling from the recession and worried about the fragile recovery.

"The market is going to be very divided," said Kirthi Kalyanam, director of the Santa Clara University Retail Management Institute and E-Commerce Initiative. "I call it the Tale of Two Christmases."

Outside the Bay Area economic bubble, that means avoiding a splurge for a big-screen TV or maxing out credit cards. Instead, experts see consumers choosing essentials like a practical winter coat and opting for a more modest gift display under the Christmas tree.

But in the Bay Area, the strong housing recovery, string of IPOs from tech companies and the recent stock market surge is anticipated to drive many shoppers to spend freely in stores, a reminder of the uniquely powerful local economy that has become a gold mine for retailers. Some economists consider the Bay Area the strongest local economy in the nation -- Bay Area unemployment was 6.7 percent in the third quarter this year, compared with a national average of 7.4 percent and income growth is up 5.6 percent over the last year.

"That's going to translate to spending," said Garrick Brown, director of research for real estate group Cassidy Turley. "It will definitely save the Bay Area Christmas."


Advertisement

Much of the holiday cheer is thanks to the year of successful initial public offerings from companies including Barracuda Networks, Veeva Systems, RingCentral, Rocket Fuel and of course Twitter. They have created a new crop of millionaires -- adding to those who came out of Facebook's IPO last year -- and a wealth effect that extends far outside the tech industry.

The recent surge on Wall Street has helped, too. The Nasdaq composite index closed above the 4,000 mark on Tuesday for first time in 13 years, lifted by the broader bull market that has also been a boon for tech companies this year.

Silicon Valley will "benefit from the stock market," Kalyanam said. "Those consumers will not hesitate. They'll spend normally or better than normally."

He said many of the young and wealthy have bought new homes that now need to be furnished -- putting home decor, appliances and furnishings at the top of the Christmas list.

Retailers face a tougher market in much of the rest the country. Gone are the Christmases of 2005 and 2006, when wild spending and credit card debt made for robust retail sales and hefty bills come January, said Kathy Grannis, senior marketing director for the National Retail Federation. This year will be a time for homemade gifts and doorbuster deals, and maybe a tech gadget if it's on sale. The National Retail Federation predicts Americans will spend about $738 on holiday gifts this year, about 2 percent less than last year and the first per-person spending decline since 2009.

"What we're seeing is a lot of people this holiday shopping season are going back to the basics," said Drew Kessler, vice president of marketing and communications of the National Foundation for Credit Counseling, a nonprofit providing credit counseling services.

And a lavish Christmas is still far out of reach for many in the Bay Area who aren't benefiting from the tech-driven economic boom and, like much of the rest of the country, are paying down debt or are still reeling from a home foreclosure or job layoff.

San Jose resident Karen Sandoval Luster said her family paid off three credit cards this year and closed the accounts. She said her son asked for a video game, and she's having him recycle cans and bottles to raise the money to buy it himself.

"We'll buy smaller, more useful gifts," she said. "No splurging."

About 14 percent of shoppers say they'll make their own gifts this year, a slight increase from last year. Credit card dependency is down 12 percent, according to the National Retail Federation, and more shoppers are using cash or relying on layaway programs to pay for big-ticket items with monthly installments. Many budget-conscious consumers will use Christmas sales to make purchases they have put off for weeks or months -- such as a new coffee maker or set of sheets.

"They're just delaying purchases," said Pam Goodfellow, principal analyst with Prosper Insights and Analytics, which provides research on consumer spending. "We've become more intelligent out of the recession."

Contact Heather Somerville at 510-208-6413. Follow her at Twitter.com/heathersomervil.