Quick rebound unlikely in retail

Opposite: This year may be reverse of 2000, with sales rising the second half.

January 21, 2001|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

After the most disappointing holiday retail season in a decade, few experts expect a quick rebound for retailers in 2001.

News has been grim so far, with store closings, layoffs and bankruptcies coming on the heels of a 2000 holiday season hurt by a slowing economy, high energy prices and bad weather. But the outlook should improve by the middle of the year, experts predict.

"I think in a general sense, it will be almost a flip-flop of last year. In 2000 it went gangbusters for six months, then tapered off," said Tom Saquella, president of the Maryland Retailers Association. For the first half of this year, "It's going to be very tough in Maryland to top the sales increases we had last year, and we may see sales decreases on a percentage basis."

William Ford, senior economic adviser for TeleCheck Services Inc., a check acceptance company and subsidiary of First Data Corp., also anticipates a slower economy and slower retail growth for three to six months.

But, "hopefully with the Fed acting promptly, it can help the economy from drifting downward into a recession," Ford said, referring to the Federal Reserve cutting the key overnight lending rate by half a percentage point early this month. "A combination of cutting interest rates and cutting taxes should help get the economy back on track."

Maryland retailers should get an added boost from the state's first tax-free week, scheduled for Aug. 10 through Aug. 16. Shoppers will pay no sales tax on clothing or footwear costing less than $100.

But for now, weak December sales have meant bad news. In December, sales rose on average just 0.7 percent above 1999 levels, according to the Bank of Tokyo-Mitsubishi, and most chains' sales fell far short of expectations.

The weakness, in part, caused Montgomery Ward to file for Chapter 11 bankruptcy. The 128-year- old retailer said it will close all 250 stores - including 13 in the Baltimore-Washington region - and lay off 28,000 workers in the next few months.

Bradlees Inc., a Northeast discount chain, also said in December it will liquidate this year. And Sears, Roebuck and Co., which saw sales dip 1.1 percent in December, said it will close 89 underperforming stores in the first quarter, including its department store at Owings Mills Town Center.

In 2000, sales at stores open at least a year rose 4 percent, according to the Bank of Tokyo index. A continuing slowdown in consumer demand will slow the pace of retail sales growth this year to 2 percent to 3 percent, Michael P. Niemira, a bank vice president, predicts.

"We're likely to see a lot of the same uneasiness throughout 2001," Niemira said. "I suspect the next year, the focus will shift to be less on the consumer and more to industry problems," leading to "some store closures and more shakeout in the industry itself."

Part of the problem has been that the United States simply has too many stores, Niemira said. Sales would have to grow at a 5 percent to 6 percent pace to keep all existing stores in business, he said.

Those who do the best job of merchandising and operating most efficiently will have decent sales, said Eric Segal, president and chief operating officer of Kenzer Corp., a New York executive- search firm for the retailers.

"The companies like the Wal-Marts, Targets - these are the companies that will lead the way in mass merchandising," while Home Depot and Lowe's will continue to dominate in home improvement, he said. "The department stores that understand on a continuing basis what customers are looking for will probably produce decent results."

But retailers will have to work harder this year, Kenzer said.

"There's a lot of opportunity out there. Those who manage the business smartly will be winners," Kenzer said. Retailers "will have to be very careful of inventory levels, careful of markdowns and watch operating expenses without sacrificing good customer service."

The retail real estate landscape in the Baltimore area will continue evolving mostly through redevelopment of aging shopping centers and malls as opposed to construction of new centers, experts said.

Last year saw the opening of what will likely be the last new regional mall in the Baltimore area, the 200-store, entertainment-oriented Arundel Mills near Baltimore-Washington International Airport.

"Initially, it will take some business from those major shopping centers within a 10- or 15-mile radius, and that seems to be happening," Saquella said. "In the long run, starting this spring or summer, [the mall] will be a real plus because it will be more of a tourist attraction and is designed to bring shoppers in from afar."

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