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Some business analysts suspect that the Dun & Bradstreet figures, grim as they are, actually understate the real business death rate. The organization, they point out, counts only failures that involve a loss to creditors, and for every one of these, there are an estimated ten more businesses that just quietly close up and quit. One belongs to Durward DeChenne, who in 1960 started a business selling marine equipment and, later, snowmobiles in Clarkston, Wash. By 1979 the business had grown to a sales volume of $2 million a year. Then came the interest-rate surge, and since many of his customers had traditionally financed their purchases instead of paying in cash, DeChenne's sales plunged. By 1981 his business had shriveled to amere $600,000, and DeChenne was paying 24% interest to carry his inventory. Says he:
"There isn't any way in the world you can pay that kind of interest and make it." In November he discharged his five employees and began liquidating his inventory, at prices so low that he has lost almost all the money he had accumulated in 21 years in business. Says DeChenne, 65: "I had hoped to succeed and retire with a reasonable income. Now I'm just trying to retire."
Consumer Buying. In the late 1970s, consumer installment debt outstanding jumped by anywhere from $35 billion to $43 billion annually, intensifying the decade-long inflation. But last year, debt expanded by only $19.6 billion, a slowdown that is itself proving disruptive. The University of Michigan's most recent quarterly survey of consumer attitudes, conducted late last year, leaves little doubt as to why: exorbitant interest rates.
Though consumers are popularly believed to have only a vague notion of the amount of interest that they pay on credit purchases, Survey Director Richard T Curtin found them actually to be quite well informed. His researchers asked those who were postponing purchases what interest rate they thought they would pay if they did buy. Their answers averaged 17.5%—which was almost exactly right. How much would they be willing to pay? Average answer: 11.9%.
Retailers glumly affirm that this wariness is holding down sales of all sorts of goods. In Boston, Dennis Gedzuin, manager of The Riverboat, a women's clothing store, estimates that charge-card purchases dropped by a third at his store last year. Partly as a result, last week The Riverboat still had some merchandise left from 1981 and was clearing it out by offering discounts as high as 90%. In Milwaukee, Stanley Waldheim, president of Waldheim's Furniture Co., complains that "time payments for furniture are at a standstill. That has eliminated a big segment of our business." Unable to make enough money on cash sales to cover its rising costs—including 18% to 20% interest rates on inventory loans—the Waldheim store, founded in 1892, is about to close.
Wary though they are about taking on more debt, a growing number of consumers seem to be unable to pay off the debts that they already have. Personal as well as business bankruptcies are rising sharply. High interest rates, of course, are far from the only factor. Also important is a general relaxation of