Retailers expect cautious buying

Consumers to shun luxuries, say experts at trade show in N.Y.

January 15, 2002|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

NEW YORK - Consumers worried about potential layoffs and heavy debt will carefully watch their spending in coming months, shunning luxury goods and seeking out value, say retailers and industry experts gathered here for a national trade show.

Talk of the recession - and how to survive it - dominated yesterday's opening of the National Retail Federation's annual conference, where retailers met in hopes of finding ways to lure shoppers after a difficult year.

"The consumer has changed and downsized," said Walter Loeb, a New York-based retail analyst and president of Loeb Associates. "Rolexes are out. Armani suits are out, and people have shifted to wearing ties because they're not sure about their jobs anymore."

Still, the retail trade group said yesterday it expects retail sales this year to rise by 3.7 percent over last year. In 2000, many chains and independent retailers struggled through a recession, stalled sales after the Sept. 11 attacks and unseasonably warm late fall weather that hurt sales of winter apparel.

"This year will be one of recovery and growth," said Rosalind Wells, chief economist for the NRF.

She predicted a quick end to the recession and gradually improved consumer spending, spurred by lower interest rates, lower energy costs and a rebounding stock market.

Jonathan Lipsky, chief economist for J.P. Morgan, Chase and Co., too, said he believed the recession would end in the next couple of months. Because they have tightened inventory levels and sold off excess goods through heavy promotions, retailers should find themselves better positioned, he said. But because income growth has slowed, consumer spending will likely stay around 2 percent to 3 percent and not reach the high levels of spending of the late 1990s, he said.

Others disagreed about how quickly the economy will recover, with unemployment expected to rise to as high as 7 percent this year.

"We're in a period of stagnation," and unlikely to emerge from the recession until late this year, Loeb said. "I don't think we'll see a quick recovery. The consumer is still concerned with debt, unemployment and uncertainty over the stock market."

That will likely mean retailers that have become "irrelevant" to the consumer will shut stores or go out of business, Loeb said.

"Consumer demand is not going to go up until somebody puts money into [consumers'] pockets," said Kurt Barnard, president of Barnard's Retail Trend Report, a retail consultant and industry newsletter.

Wells said shopping patterns shaped by the recession will likely linger, with consumers continuing to stay closer to home and buy home-related goods and consumer electronics and to continue to favor value-oriented stores such as Wal-Mart and Target.

"Consumers are still spending money, but what they're buying and where they're buying is different," said Peter Brown, president and chief executive officer of Kurt Salmon Associates.

The discounters' gain in market share will continue to come at the expense of department stores and mall-based specialty stores.

"That shift has occurred, and we're painfully aware of it," said Terry Lundgren, president and chief merchandising officer of Federated Department Stores.

The company, which runs Macy's and Bloomingdale's, is taking steps such as getting back into the children's shoe business to attract parents who will then be more likely to buy their own clothing in the department stores. The chain is also trying to differentiate itself from the mass discounters by focusing more on its private brands and on more fashion-oriented, as opposed to basic, apparel, Lundgren said.

But he said the company is not likely to increase orders to its vendors until it sees more evidence of improved consumer confidence.

In tough times, it becomes even more crucial to reinvest in marketing and new product development, said Roger Farah, president and chief operating officer of Polo Ralph Lauren Corp. "Our company is built around that," Farah said. "Even in tough economic times, the right product sells."

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