Retailers are thriving, and holiday buying is near Asia could be a spoiler, as could U.S. economy

The Outlook

August 23, 1998|By J. Leffall

MANY RETAILERS such as Dayton Hudson Corp., Home Depot Inc. and Limited Inc. posted strong second-quarter earnings as consumers snapped up goods ranging from barbecue grills to designer fashions.

Analysts say retailers are reaping the benefits of the robust U.S. economy, which is giving shoppers the cash and the confidence to splurge on themselves and their homes. That's likely to continue, they say, during the back-to-school blitz and the coming holiday season. Will consumers continue to fill retailers' pockets? What would dampen sales? Will the high-spending trend continue?

Howard Davidowitz

Chairman, Davidowitz & Associates Inc., New York

To understand retail trends, you have to think globally. I think in the global context, consumers have tremendous confidence. More people are working and less companies are being restructured. Americans are richer than they've been in a long time.

When you look at our economy compared to the world, we look pretty good. We are where the world wants to be and where the world wants to put its money. And, as long as consumers are confident, they are going to keep spending. That is what has driven the retail industry.

Now, conversely, there are a bunch of things that could happen to slow this success down. If liquidity were to dry up, that would begin a downward spiral. Some would say that, while consumers are spending a lot, they are spending at a rate that is too rapid -- more than they are earning. Should there be an unraveling of this market and should interest rates soar, things will reverse course.

Another example is political events. There are things, certain crises, that shake consumer morale. International affairs, too. Let's say Russia collapses, and China could start to unravel if they devalue their currency. This all trickles down to affecting our economy and, ultimately, our way of life.

But what makes this year different from others is that Americans have less time to spend shopping -- probably less than ever. The discount stores, which are a big part of the retail boom, will do even better because they offer everything in one clean shot. I've never seen Americans so time-poor. Convenience becomes more important in this environment. Because of the casual trend as well, people are going to specialty clothing stores a lot less as well.

The holiday season will increase at a rate of 5 percent, mainly driven by discounters. By and large, it will be a good Christmas. Next year, 1999 -- that will be a different story, though. Right now we are in a bubble economy, and, as you know, bubbles lose air and sometimes even burst.

Joseph Ronning

Retail analyst, Brown Brothers Harriman, New York

There's a good economy, and that's the obvious reason. Consumers are buying everything up. As a retailer, you started ++ off with good sales because there was very mild and favorable spring weather. So sales of seasonal merchandise fared well due to good weather in early April and through May. The trend continued as retailers, going into the second quarter, didn't have an an excess of merchandise.

Overall, sales won't be as high as they were in the second quarter, but second-half numbers will still be consistent with first-half-of-the-year numbers. Across the board, sales will grow by about 5 percent.

The discount stores will show numbers in that 5 percent range and department stores at around 3 percent same-store growth.

So far this year consumers have been inclined to buy everything earlier. From the consumer spending point of view, this year is different because retail numbers are at normal patterns. They really should have been stronger than they were in past years.

I would not expect this to continue in 1999, though. The situation that we saw this year -- everything that could have possibly gone right did. I don't think that will be repeated next year.

Kurt Barnard

President, Barnard's Retail Trend Report, Upper Montclair, N.J.

What's behind this is one of the most astonishing buying binges in a very long time. Retailers are literally dancing in the aisles. As for the industry, retail has prospered for the past 18 months. People were and are buying everything in sight.

Retailers got away with generating sales without a lot of markdowns. They've also found ways to reduce costs.

We are still looking at a loose cannon, though, and that loose cannon is Asia, Russia, and all the countries that are in an economic position to put a damper on our economy.

That would be shown in a reduction of exports. This will all trickle down to factory closings and unemployment.

With the main factor of this blitz being an unbelievably low unemployment rate, a rise in unemployment is something the country doesn't need. The fact that people have jobs and can easily get them drives spending.

If this Asia thing trickles down, we could see more headlines of layoffs and such. People will then raise the caution flag. What will happen is open to question. Unless the Asian crisis has an immediate effect, we see the back-to-school season and Christmas being strong.

In the future, there will definitely be a gradual slowdown in acceleration of sales and the economy as a whole.

Mark Millman

Chairman, CEO, Millman Search Group Inc., Baltimore

There are primarily four factors which keep the economy going at a brisk pace: low inflation and unemployment, reasonable interest rates and high consumer confidence, which translates into strong earnings on a wave flowing into the back-to-school season.

Any dramatic shift in these factors will impact spending habits, causing a slowdown in the retail environment.

I believe the economy will continue at this pace at best through the turn of the century, with inflationary pressures returning and a few bumps along the way.

Pub Date: 8/23/98

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