Rebound isn't likely until 2nd half

But Kmart, other stores may not be see 2004


January 12, 2003|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

Retailers in Maryland and elsewhere in the nation can expect some relief this year as a weak economy gains strength and spurs consumer buying, retail experts predict.

But an economic turnaround that could benefit retailers isn't likely until at least the second half of the year, they said.

"We're looking for a gradual improvement in the economy next year, starting off slow in the first half and accelerating in the second half," said Rosalind Wells, chief economist for the National Retail Federation. "Retail sales will generally follow that pattern."

For the first six months, same-store sales, the best measure of a retailer's performance, will likely increase only slightly or drop compared with 2002 for many retailers, Wells said. But average sales for the full year are expected to show gains over 2002.

The Bank of Tokyo Mitsubishi, which tracks weekly and monthly retail sales, expects consumers to continue to act cautiously, resulting in a sales gain of no more than 3.5 percent.

The National Retail Federation offers a more optimistic view, calling for an average sales gain of 5.6 percent in 2003. Wells estimates that sales rose 5.4 percent last year.

Improved sales this year will be driven in part by more investment on the part of businesses, Wells said.

"So far, the consumer has been carrying the economy," she said. "[In 2003,] growth will be more balanced," as companies hire more workers, boosting incomes and thus spending by consumers.

In Maryland, retailers will likely see sales grow 3.5 percent to 4 percent, the Maryland Retailers Association says.

"We've had two, almost three, pretty sluggish years in retail, and we're hoping things will start to turn around [this year]," said Tom Saquella, president of the state association. "The main thing is the overall economy picking up. If the overall economy doesn't pick up, it will be difficult for retailers to pick up as well."

Experts said sales could fall short of predictions if the United States goes to war with Iraq or suffers another terrorist attack.

In 2003, experts expect to see shoppers continuing to frequent discounters, such as Wal-Mart Stores Inc. and Target, at the expense of department stores and specialty stores.

"People are very value-conscious, and I don't expect that to end overnight," Wells said.

That trend won't be of much help to one discounter, however. Kmart, which is fighting to rebound from its Chapter 11 bankruptcy protection filing a year ago, has closed 283 stores and is expected to announce another round of closings next month. Analysts are questioning whether the retailer will survive the year.

"Kmart is on the edge, and a lackluster Christmas season is going to make it tougher for them to emerge from Chapter 11," said Jordan Kaplan, a professor of managerial sciences at Long Island University.

Kaplan also says intense competition among home electronics retailers could threaten one of the bigger players in 2003. Circuit City, he believes, is more vulnerable than rivals Best Buy or Radio Shack.

"Everyone is selling the same stuff, and there are so many outlets to support," Kaplan said.

While Kmart and others - possibly Sears, Roebuck and Co. - will be retrenching, other retailers are still expanding, among them Kohl's, Lowe's, Wal-Mart, Target, Home Depot, Sam's Club and Costco.

These types of retailers will continue to compete for the best, and increasingly hard to find, sites in Maryland and the Baltimore area, said retail specialist Tom Maddux, president of NAI KLNB Inc., the commercial real estate company.

"They will do the deals that are easier and not as risky," he said.

Medium-sized specialty retailers, such as Michael's, Dick's Sporting Goods, TJ Maxx, Barnes & Noble and Borders, will continue to fill in with new stores.

"They're still interested in doing deals, and the Baltimore area is a proven area," Maddux said.

Categories that are expected to perform well in 2003 include home-related goods, such as furniture and appliances, thanks to a strong housing market, and leisure goods, such as books, CDs and DVDs.

A boost in the economy could also help the battered apparel category, some experts said. "People do wear out their clothing," and could be ready to buy apparel again in 2003, said Saquella of the Maryland Retailers Association.

Hampstead-based Jos. A. Bank Clothiers Inc. is counting on it. The men's apparel chain, which has been posting record sales and earnings, expects another strong year, with earnings up by about 20 percent, said Robert N. Wildrick, the chain's chief executive officer.

Same-store sales will be up and total company sales will increase "significantly," he said.

The chain will launch an aggressive store-opening program this year, with plans to open 50 stores by Thanksgiving, about two-thirds in existing markets. The retailer also plans to expand its Carroll County distribution center to serve the 500 stores the company expects to be operating in five years.

Another Maryland company, Prime Retail Inc., has struggled with burdensome debt and lower sales and occupancy at its malls, but expects its fortunes to turn around.

Prime, one of the largest owners and operators of outlet malls, reached a financial milestone last month when it paid off a key high-interest loan.

The new year will bring a long-awaited face lift to another mall, 21-year-old Hunt Valley Mall in north Baltimore County.

Erwin L. Greenberg Commercial Corp., a Baltimore developer that bought the struggling mall last month, plans to demolish part of it and rebuild it into a shopping and entertainment-oriented destination.

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