By  on July 24, 2014

In another sign that retailing has been difficult, the National Retail Federation has cut its retail sales forecast for 2014, citing slow growth in the first half of the year.

NRF said Wednesday that retail sales will grow 3.6 percent in 2014 to $3.2 trillion. The original forecast in January called for 4.1 percent growth. Internet sales are seen at 9 to 12 percent ahead this year, representing 5 to 6 percent of total retail sales in the U.S.

“No retailer was immune to the doldrums witnessed during the first quarter, and as a result, the year’s growth trajectory was impacted,” said NRF president and chief executive officer Matthew Shay.

It’s been widely recognized that consumers have little motivation to shop due to several factors — a sense of diminished disposable income and that the economy remains sluggish, inflation, the lack of product innovation or hot items in fashion and technology, and the crises in the Middle East and the Ukraine. Business on the Internet, which continues to generate healthy gains, doesn’t offset the business retailers lose from Web sites siphoning traffic from the malls.

In response to the prolonged malaise, retailers all year have been discounting like it’s Christmas every day, and the price promotions are expected to take a big bite out of second-quarter profits and step up already increased pressure on vendors for markdown money and chargebacks. Many retailers staged price promotions at 50 to 60 percent off around the Fourth of July, whereas last year, it was more like 30 to 40 percent off.

Some retailers have even blamed the weak results in the second quarter on the World Cup, with people staying home or hitting the sports bars to watch the games. “The problem is much more serious. People don’t have discretionary spending power and are being very restrictive in what they are buying,” said retail analyst Walter Loeb.

“We’re losing that mall shopper, that browser,” said a ceo of a national specialty chain. “The first quarter was horrific — the first half tepid at best. I don’t think anyone is looking for a bang-up Q3. People are just waiting for another dogfight. If anything, they’re looking for opportunity in Q4.”

The NRF sees a healthier positive trend developing in the second half, which starts in August. “There is plenty of evidence that the second half of the year will be better for the industry as consumers begin to feel more optimistic about their spending decisions,” Shay said. “And though we maintain realistic expectations of retail sales growth in 2014, we are optimistic that the chances for a stronger economy still exist.”

NRF calculated that sales grew 2.9 percent during the first half of this year and should grow at least 3.9 percent during the second half. The numbers include general retail sales and nonstore sales, and exclude automobiles, gasoline stations and restaurants.

“The severe weather and other factors we experienced earlier this year have taken their toll on retail, but most of those problems are behind us,” said NRF chief economist Jack Kleinhenz. “A second look at our forecast shifted our expectations slightly, but it’s important to note that the outlook is positive. Sales are growing and we expect them to continue at a moderate pace.”

Others are less hopeful.

“We have not seen any signs of a pickup,” said Craig Johnson, president of Customer Growth Partners. “The outlet malls are OK but not great. Usually they are pretty good on summer weekends when people are traveling, but traffic at key destination stores such as Michael Kors and Coach has not been what it’s been in the past.”

“The single biggest issue is disposable income growth,” Johnson added. “If there is weak real income growth, there is going to be weak retail sales.

“The second factor is that for the first time in over two years, we’ve seen rapidly rising food inflation, particularly in meat, dairy and produce, which are up 6 to 8 percent. Overall food inflation is running 3.5 percent. Gas prices have been up but two weeks ago, they started settling down.”

Johnson is also concerned about what he sees on the store shelves. “There’s nothing new at the mall, no real compelling fashions, nothing that’s hot in consumer electronics. People are trading down. Apple’s retail sales were essentially flat last quarter. The Apple stores are less crowded.”

Retailers have said that activewear, dresses, swim, shoes, accessories, rompers, jumpsuits, maxi and wrap-body skirts and handbags are doing the best, while denim, sportswear generally and jewelry have been soft.

The onset of back-to-school and state sales tax holidays beginning this weekend in Alabama and progressing through the South and later in the North in the weeks ahead, raises some expectations. B-t-s, in certain states, starts in earnest this weekend. On a national basis, it’s in full swing the first weekend of August.

Johnson predicts b-t-s sales will be up 3.2 percent. “That’s the worst since 2009,” he said. Last year it was 4.2 percent, and in prior years, saw midsingle gains.

“Certainly we have seen difficulty in the economy this year,” said NRF’s Kleinhenz, during a conference call. “We thought the economy would improve and see more balance across sectors. The weather was certainly a very discouraging big negative for gross domestic product for the first quarter.”

On the other hand, he said income levels, employment and consumer confidence are improving. “We are doing better but not well. Nominal income has increased and should continue to as inflation concerns and pressure are reduced.” The housing market, he said, gives mixed signals — starts have recently plummeted, but home sales have been positive. While the unemployment rate will probably be pulled downward, concerns over high food and energy prices continue, he noted. He characterized consumers as “remaining modest spenders, cautious, selective, price-sensitive, which raises issues of how fast this economy can grow. The outlook really requires low interest rates to support consumer spending.”

“We are not making news today by acknowledging the first half of the year was really tough and that has caused everyone to think about projections for the year,” said Shay. “The positive message is how strong we think the second half will be. The challenge is we are in this really low-growth environment, despite the [strength of the] stock market and home sales, consumers aren’t feeling confident across the board, top to bottom.”

Shay also said there haven’t been significant levels of business investment, retailers feel there will be winners and losers in every category during the second half and the environment remains tough.

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