Retail Sales Headed for 4.8 Percent Growth in 2007
By Ronald Margulis, Managing Director, RAM Communications
The National Retail Federation released its 2007 forecast Tuesday, predicting that retail industry sales (which exclude automobiles, gas stations and restaurants) will increase 4.8 percent from last year. According to its quarterly Retail Sales Outlook report, released at NRF’s 96th Annual Convention & EXPO, NRF expects subdued first half economic growth to give way to accelerated sales in the second half.
Retail sales increased 6.3 percent in 2006. The first half of the year was much stronger than the second half due to the housing slowdown, high energy costs and tepid employment growth.
“This year, slow economic growth will be reflected in moderate consumer spending and retail sales gains,” said NRF Chief Economist Rosalind Wells. “The quarterly industry sales pattern will be the opposite of last year with modest gains early in the year and better increases in the second half.”
Sales at building material and garden equipment stores experienced lower growth last year, as did furniture stores. Other categories, including general merchandise stores, apparel specialty stores, health and personal care stores and food and beverage retailers maintained steady sales gains in the mid-single digit range.
According to the Outlook, industry sales gains of 3.8 percent in the first quarter should increase to 4.6 percent in the second, 5.2 percent in the third, and 5.7 percent in the final quarter.
Current retail trends will persist throughout the year. Luxury retailers will continue to outperform. Online shopping will continue to escalate. Retailers catering to the lower and mid-level income consumer will find achieving sales gains more challenging. Demand for merchandise related to the home will be impacted by a soft housing market.
Discussion Questions: How strong will retail sales growth be in 2007? What retail sectors will show the strongest growth?
I’m a little more optimistic about 2007, and think the growth rate will be closer to the 6.3 percent seen last year.
Like last year, the NRF show this week was well attended, had great speakers and had several networking opportunities. Congrats to all at NRF. The one area that seemed lacking was that there wasn’t anything really new on the show floor.
There was something called “The STUDiO: Design for the Senses” that demonstrated how companies can drive sales, productivity, and profitability by appealing to customers’ sense of sight, sound, smell, taste and touch. But this was off the beaten path. There was also X07, the store of the future display, but this seemed a repeat from last year.
The one booth on the show floor that really impressed me was a relatively low-tech solution to a personal challenge – gift wrapping. Met-Tech Corp of Meridian, MS was showing a contraption that automated parts, but not all, of the gift wrapping process, and claimed it is 10 times faster than manual wrapping. I wasn’t as impressed about the speed as I was at how perfect the wrapped boxes looked, especially compared to the ones I wrapped during the holidays!
Employment,consumer confidence and average hourly wage trends have been encouraging. On the other hand, interest expenses(both credit card and mortgage) are taking a bigger bite out of real personal disposable income growth in 2007. The wild card is whether the recent dramatic slowdown in home equity withdrawal has a medium or large impact on spending–and that depends on the degree to which it bolstered sales in 2006 and 2005. The risk is on the downside for overall consumption therefore. Furthermore there ought to be regional risk as some of the bubble real estate markets deflate noisily.
So, overall, we agree with the NRF; a worse year than 2006 but not the end of the world.
What a Year It Will BE! 2007 promises to be a very good year, if, everything falls into place. The geopolitical climate in the world today will have a profound effect on a number of retailing sectors. But others will either be untouched or accelerated by some of these events.
I really do wish all sectors could experience real/measurable, profitable growth, enabling them to invest in incremental category growing innovations. Though this is just a wish, the companies that do grow will take the money and run, to the detriment of retailers and consumers alike.
Yes, I am cynical, like most people across the country (U.S.). I will believe it all when I see it.
From the January issue of Integrated Retailing:
Will 2007 be another strong growth year?
Yes, by all indications. According to the Business Roundtable Economic Outlook, more chief executives expect their companies’ payrolls to rise in the next six months than those who expect declines (37% vs. 23%); the rest (40%) expect no change.
Job growth in service industries, which account for four-fifths of all payrolls in the private sector, will offset weakness in the manufacturing and construction sectors.
Incomes will again rise from employment, investments and financial assets. Housing and net wealth will not increase as fast, but will not decline. Consumers are still in good cash positions, as evidenced by still-low delinquency rates for most types of loans. In other words, household finances should remain broadly healthy enough for consumers to keep spending at a steady pace.
Do leading retailers agree?
Yes. According to a survey by BDO Seidman, chief marketing officers at leading US retailers are very optimistic about the US economy and their companies’ sales outlook for the present year. Almost two-thirds (64%) of the marketing executives indicated they are more optimistic about the US economy than they were a year ago, and more than three-quarters (78%) of the CMOs feel their companies’ sales performance in 2007 will be stronger than 2006. Overall, the retail CMOs predict an average year-over-year sales increase of 8.6% in 2007.
Why else are you confident?
Real gross domestic product has grown for 20 consecutive quarters. Employment and industrial production, the best and broadest economic indicators, continue to climb at very decent rates. According to latest figures, income and consumer spending are up (not a surprise to those of us privy to the U.S. Consumer Demand Index, available only in Integrated Retailing).
As long as interest rates and gas prices remain where they are, retail sales should be OK. If interest rates and/or energy prices rise sharply, nonfood retailing will suffer. Predictions to the nearest tenth of a percentage point seem inappropriate, though.
The remainder of 2007 for retailing is a like a jigsaw puzzle. The pieces for success are there but unique weather patterns, fluctuating fuel costs, a new excitable Congress and the Fed Reserve all want a piece of the determining action. My crystal ball says things should get better in the spring and summer and I look for a good retailing year.
The Consumer Electronics industry will continue to be strong thanks to the growth of HDTV, the release of Vista and the continued growth of the iPod and other similar devices. Clothing may end up being soft due to the mild weather the U.S. experienced in 2006 and the impact it had on the clothing industry. If the price of gas comes down, the grocery industry could see stagnant real growth due to consumers having more disposable income and spending it on food away from home. Keep in mind the grocery industry is going to have dollar growth this year due to inflation in the fresh produce area, due to the winter freezes and increased prices for grain and protein items due to the rapid expansion of ethanol. Finally, grocery will be hit harder than most segments due to the increase in many minimum wage laws at the state or local level plus the pending change at the federal level.
Overall we’ll see retail growth however the real growth will continue to be in “webtailing.”
We’re projecting that 2007 will net out at slightly more than 5% sales growth (excluding auto and gas). Leisure, medical and electronics categories should fare well; electronics, apparel and net channels should also outperform.