Slower Retail Growth Forecast For 2007

The National Retail Federation predicted yesterday that retail industry sales will increase 4.8% this year--still hamstrung by the housing slowdown, high energy costs and the lackluster employment growth that kicked in during the second half of 2006.

Overall retail sales--which do not include automobiles, gas stations, or restaurants--gained 6.3% in 2006, the NRF said, with a more robust first half.

"This year, slow economic growth will be reflected in moderate consumer spending and retail sales gains," said NRF chief economist Rosalind Wells. "The quarterly industry sales pattern will be the opposite of last year with modest gains early in the year and better increases in the second half."

The slumping real estate market hurt sales as building material and garden equipment stores experienced a sharp deceleration last year, when gains of 20% at the beginning of the year slid to declines of more than 4% by the fourth quarter. Growth in furniture sales also declined.



Among the categories that held steady, with sales gain in the mid-single-digit range: General merchandise stores, specialty clothing stores, health and personal care stores, and food and beverage retailers.

Holiday sales (the months of November/December), excluding gift cards, online and mail order, came in at a 4.4% increase, Wells said. If building materials were taken out of the mix, holiday merchandise sales would have risen 5.3%, she said.

For the year ahead, NRF is predicting industry sales gains of 3.8% in the first quarter, 4.6% in the second, 5.2% in the third, and 5.7% in the holiday quarter. The trade group also said it expected both luxury retailers and online sales to remain strong.

At a press conference releasing the forecast, Wells said she doubts the housing market has hit its bottom. "The government doesn't record cancellations--people who walk away from contracts," she said.

Separately, Jupiter Research yesterday predicted that off-line retail sales influenced by consumers' online browsing and research will increase by a compounded annual growth rate of 12% for the next five years, and reach $1 trillion by 2011. And the growth in online retail spending will begin to slow.

"Assuming growth continues in a similar trajectory over the coming decades, U.S. online retail sales will plateau at 10% to 15% of total U.S. retail sales," the company forecast, adding that it expects U.S. online retail sales to increase by 16% this year, reaching $116 billion.

"Despite the slowing of growth in online buying, Web influenced off-line sales will grow at a slightly faster pace over the next five years, reinforcing the vast advertising and marketing value retailer websites present," the company said. "The key for retailers is to create clear, simple and convenient links to the off-line channels that persuade shoppers to stay with them as they cross channels."

In a presentation yesterday at the NRF Annual Convention, Pat Conroy, vice chairman of Deloitte & Touche USA, called these shoppers "surgical buyers"--the ones who do their homework online and come to stores with a playbook.

In a post-holiday survey of shoppers, the 64% of consumers who did online pre-shopping spent on average $101 more in stores, Deloitte found.

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