Faced with a slowing economy and inflation, retail industry sales are expected to experience slow growth this year, rising only 3.5% from last year, the slowest growth since 2002, according to the National Retail Federation.
The average growth for retail industry sales over the past 10 years is 5%.
In its 2008 economic forecast, which the NRF released yesterday at its 97th Annual Convention and EXPO in New York, it stated that consumer spending, which will determine the path of economic growth, is the reason for the slow growth. The national housing slump, rising energy and food costs, coupled with a weak employment have curbed consumer confidence in spending.
“All these pressures give consumers concern about the economy and they are being more cautious about their spending,” said Rosalind Wells, chief economist at the NRF.
While the growth is expected to be slower than in years past, the 3rd and 4th quarters of the year are expected to experience slightly more growth. The NRF predicts a 3.2% gain in the first half of the year and then a 3.8% gain in the second half of the year. Wells attributed this growth to a package that is expected to come from the Federal government, which could offer consumers incentives to spend and businesses incentives to invest.
Despite the weak growth, electronics retailers are expected to keep above the average growth, with new products and cheaper prices attributing to this growth. Food and beverage retailers are expected to keep par with the average slow growth for the year, while home furnishings retailers should expect a loss in sales, due to the weak housing market. Clothing is expected to have the average slow growth, unless a new fashion trend comes out this year to increase sales.
The middle-to-lower income consumer will be affected the most by this slowdown in the economy, which will affect sales at midlevel stores, but may drive business for discount retailers.
While online is expected to continue to grow at a much higher rate than bricks-and-mortar, the NRF predicts that the channel will not grow as rapidly as it has in recent years.
“Things will gradually improve as we feel the impact of lower interest rates and any other package that comes from the Fed,” Wells added.
To respond to this slow-growth market, some retailers are rethinking strategies and even consolidating. For example, specialty retailer Talbots is consolidating its men’s and children’s businesses to focus on its core female consumer.
“Hopefully retailers will act in a savvy manner and focus on their core consumer and making sure they have the right products in the store…good advertising and customer service,” Wells added.
