Consumers aren't quite completely shopped out

Slowdown: Spending growth will decline slightly this year, say observers.

Retail

January 23, 2000|By Lorraine Mirabella | Lorraine Mirabella,Sun Staff

Consumers shopped with a vengeance last year, as they redecorated their homes, replenished their wardrobes or bought into the digital age with computer software and digital televisions.

One of the strongest economies in history gave most retailers a banner year and, by some measures, the best holiday season of the 1990s.

In 2000, the spending spree shows signs of slowing -- slightly.

"From everything we see right now, we are expecting essentially more of what we saw this year, provided the stock market doesn't do anything crazy and interest rates don't go out of whack," said Bruce Van Kleeck, vice president of member services for the National Retail Federation. "Most people believe we're going to see more of the continued success."

'A very strong year'

Though the buying frenzy is expected to continue through the early part of this year, recent signs indicate that spending won't keep up the same pace for the rest of 2000. Last year was "really as good as it's going to get for retailers," said Celia Chen, senior economist for Dismal Sciences Inc., a West Chester, Pa.-based economic research company and parent of the Dismal Scientist web site. "It was a very, very strong year for retailers," as plentiful job opportunities and a pumped-up stock market contributed to record-high consumer confidence.

But "going forward, a lot of the factors supporting consumer spending are going to weaken," Chen said. "The economy is expanding at capacity and can't continue to grow as fast as it has been."

With savings low, borrowing high and Federal Reserve policy makers likely to raise rates, "consumers will have to hold back," she said. "Retail sales will grow this year but not on the same basis."

For instance, consumers last year snapped up computer software, DVD players, digital cameras, apparel and home goods. But demand for big-ticket items will likely soften in this year, Chen said.

Economists at Dismal Scientist are calling for a 6 percent increase in retail sales in 2000. That's down slightly from the 8.1 percent increase expected to be last year's total.

Prevailing factors continue

But many of the underlying reasons for the current economic gain will remain this year, said Mark Zandi, Dismal's chief economist. The economy has benefited from structural changes that have boosted productivity while easing some economic imbalances, he said in an economic forecast.

"The change receiving the most attention is the seeming accelerated pace of technological change and its commercial adoption," Zandi said. "Nowhere is this clearer than in the increasingly ubiquitous use of the Internet by businesses and households."

And shoppers.

Proving the Internet is here to stay as a shopping channel, consumers spent $10 billion online during the crucial holiday season -- well above the $3 billion initially predicted. During the past year, most major retailers launched or expanded online sites and Internet-only retailers continued to take on existing bricks-and-mortar competitors.

Whither e-commerce?

"One big question is, what is the face of electronic commerce going to look like after this year," Van Kleeck said. "Many companies have launched new sites and found challenges and re-evaluated strategies. There's going to be a lot of regrouping and retrenching. There are a lot of lessons being learned right now."

Online retail sales are expected to grow to $38.8 billion this year and to $143.8 billion by 2003, Forrester Research Inc., a technology research firm.

Besides offering another channel for browsing and purchasing, the Internet will influence the shopping experience in the physical world as well, said Karen Schaffner, publisher of Display & Design Ideas magazine for Bill Communications Inc.'s Atlanta division.

In one emerging trend, retailers will start putting interactive kiosks in their stores with touch screens and Internet access, Schaffner said.

"That will grow significantly over the next year or two," she said, particularly stations that offer access to the store's Internet site. "They do that for a lot of reasons, one to remind shoppers that when they leave the store, they can still visit the store from their home. If something is out of stock in the store, [customers] can walk in to the Internet station and order it."

Consumers will also be able to use kiosks to get information about products.

"With retail sales help being so hard to find these days, and so transient, the information kiosk can substitute for the level of know-how that's hard to find," she said.

Retailers will continue trying to attract specific demographic groups by creating special atmospheres in their stores, Schaffner said.

The 'tween' market

For instance, stores catering to "tweens," those aged 8 to 12, have begun offering extras such as fashion shows, in-store telephones, disc jockeys, videos and comfortable sofas.

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