Store sales expected to grow by just 3.8%

Lower projection results from economy and war

April 02, 2003|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

Retail sales will grow at a slower pace than expected this year - the slowest rate of growth in a decade - because of the war with Iraq and the weak economy, the nation's biggest retail trade group said yesterday in a revised forecast.

The National Retail Federation said it now expects sales to rise 3.8 percent in 2003 compared with last year, rather than the 5.6 percent it projected in January.

Last year, consumers spent $907.6 billion on general merchandise, apparel, furniture, home furnishings, electronics, sporting goods, books and music, a 5.1 percent increase over sales in 2001, the NRF said. The revised forecast of 3.8 percent would represent the slowest rate of growth since those categories were first tracked in 1991.

"The Iraqi conflict is hindering decisions made by both businesses and consumers," said Rosalind Wells, the NRF's chief economist.

"Not only are businesses taking a wait-and-see approach before making major financial commitments, they are reluctant to conduct business as usual, holding back hiring and causing layoffs of others."

Worries about the war - and about how long it will go on - coupled with higher crude oil prices are causing consumers to curb spending as they find themselves with less disposable income, she said.

"Consumers are paying more at the pumps and more to heat their homes, and they're worried about job security," as business investment has slowed, said Scott Krugman, an NRF spokesman.

"They're very price-conscious and are concerned about the future. They're out there in the stores, but they're not going on shopping sprees right now."

The NRF expects sales to rise slightly more than 2 percent in the first quarter and by 2.5 percent in the second quarter. But the outlook should improve for the second half - if the war has ended by then, the NRF said. Sales should rise by 4.7 percent in the third quarter and 5.3 percent in the fourth quarter, the group said.

In the 11 days since the beginning of the war, consumer spending has declined by 1.9 percent, compared to the same period in 2002, according to ShopperTrak, a Chicago-based retail consultant

Besides wartime worries, record credit-card debt is also hurting consumers' ability to spend, said Ken Bernhardt, a professor of marketing at Robinson College of Business at Georgia State University in Atlanta.

All of those factors will likely curtail "recreational" shopping, he said.

"People are in a somber mood," Bernhardt said. "They are not in a mood to engage in indulgences and splurges."

Several retailers yesterday blamed the war for lower sales, including Best Buy Inc. and Pier 1 Imports Inc.

Best Buy, the nation's largest electronic chain, said it expects a drop in sales at stores open at least a year in its first quarter, which began March 2, in part because of "geopolitical concerns" and an uncertain consumer environment.

"In light of the outbreak of war, related geopolitical uneasiness and very weak consumer confidence ... it is difficult to forecast first-quarter earnings from continuing operations with confidence," said Darren Jackson, executive vice president and chief financial officer of Best Buy. Thanks to the "CNN effect," where people stay at home watching television instead of shopping, he said, comparable store sales have dropped 3 percent in March.

Home furnishings retailer Pier 1 said yesterday that it expects sales to decrease by 4 percent to 8 percent in the first quarter, ending May 31.

"Clearly, the war has had an impact on retail sales throughout our industry," said Marvin J. Girouard, chairman and chief executive officer, noting that March same-store sales are expected to be down as much as 7 percent, more than expected.

But Girouard said the company has not altered its growth plans, and will push on with opening 115 stores in the coming fiscal year.

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