"That's going to bring a lot of pain ahead for retailers, and this will be a tough competitive environment, with more downward pressure on prices. We'll see more store failures," says Frank Badillo, senior economist with Retail Forward, the Columbus, Ohio-based consulting company. "But we continue to see signs of things bottoming out here, and the latest retail numbers confirm that. Shoppers are not necessarily in a downward spiral. They're making adjustments as they go along, but there is some expectation that things will get better later in the year."
Core retail sales, excluding autos and gasoline, are expected to end flat in 2009 compared with 1.8% growth in 2008, it predicts. Food, drug and mass channels are the only types of stores expected to grow, albeit at about half their rate of 2008. Assuming the right conditions--that the government's stabilization efforts work and consumers become more optimistic--the "fourth quarter of 2009 should begin to show signs of improvement, helped by weak prior-year comparisons."
Until then, Badillo says retail will be an ugly business. "Price-cutting pressures amid weak demand will continue to make this recession more difficult than prior recessions, making it especially hard on home improvement and other homegoods retailers, which have seen inventories continue to climb."
Still, he says, there are opportunities for stores to win new customers. "Shoppers are loath to change the way they do things, and even now, are only changing because the economy is forcing them to. But they are changing, and any retailer that can step in and say 'I'm the store that can help you do better' will do well."