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NRF Outlook in ’03: Not Rosy, But OK

NEW YORK — Retailing during holiday 2002 was disappointing, not awful, and 2003 should be better, but still not great.<br><br>That’s the latest appraisal from economists and analysts, emerging from the National Retail Federation annual...

NEW YORK — Retailing during holiday 2002 was disappointing, not awful, and 2003 should be better, but still not great.

This story first appeared in the January 14, 2003 issue of WWD.  Subscribe Today.

That’s the latest appraisal from economists and analysts, emerging from the National Retail Federation annual convention here Monday. During their presentations at the Jacob K. Javits Center, several cited lower mortgage rates, refinancings, gains in consumer income, potential Bush economic incentives and a turnaround in business investment in equipment and software, as reasons for relative optimism. Consumers might even be ready to replenish wardrobes, after holding back on apparel purchases for several seasons — provided retailers finally come up with some good-looking fashion.

Some analysts also disagreed with those in the media and on Wall Street who have recently contended that last holiday was the worst in 30 years. Perhaps it was just as bad as 10 years ago, when the U.S. was mired in another recession.

“Most respected economists agree that the economy will gain momentum in 2003,” said Philip Kowalczyk, vice president and a managing director at Kurt Salmon Associates, during the “supersession” on the economic outlook. “Real income will grow due to mortgage refinancing, but that’s traded off because everyone feels insecure about their investments.”

There’s the “shadow of the bear,” Kowalczyk said, putting a crimp on spending, but he added: “Consumers spend even in difficult economic times when there is a strong value equation. Retailers have to provide consumers with solutions — not just items.”

On the downside, analysts indicated that labor markets remain weak, and health care costs, unemployment and world tensions are all rising. Thus, retail gains will be minimal and consumers are apt to be conservative in purchases. Cocooning is still the national trend, meaning travel industries, resorts, and restaurants might muddle through the year, though that lifestyle does lead to increased spending on the home, on the Internet and on groceries.

As far as 2002, “I’m not willing to concede that sales were all that weak,” said Rosalind Wells, chief economist for the NRF. “We may be in for a surprise,” when the entire fourth quarter is tabulated. “We expect results close to 3.5 percent” for total sales, which is better than it appears on the surface, considering deflation tracked close to 2.5 percent for the first three quarters of last year.

Though the holiday season was extremely promotional, Wells said: “Not all promotions mean a negative impact on the bottom line. You’ll see promotions continue, but not as much as holiday time. A lot of retailers will buy the merchandise at good deals and will retain the margins.…I don’t agree it was the worst Christmas in 30 years.”

The best categories for holiday were home furnishings and jewelry, followed by consumer electronics, toys and apparel. Online sales showed impressive growth of 20 to 25 percent.

Forecasting for 2003, Wells said the economy exhibits erratic patterns, marked by gains in consumer income and a turnaround toward business investment, but uncertain labor markets and rising unemployment. She projected a real GDP increase of 3 percent, versus 2.5 in 2002, and steady increases in GAFS sales to 5.6 percent, which include general merchandise, home furnishings, apparel, sporting goods, book and music stores, versus 5.4 percent in 2002. “The challenge for retailers of all types is to [stock] the items consumers must have.”

Kurt Barnard, who can be as cynical as any market observer, wouldn’t buy into the theory that retail sales this past holiday season were the worst in 30 years or more. He called holiday ’02 “one of the least illustrious seasons probably since the last recession of the early Nineties,” and that the days of 5, 6, 7 percent gains are gone. Going forward, retailers will have to become more accustomed to modest same-store sales increases. “America is overstored and there’s new competition,” he said, citing Kohl’s and Target.

Gilbert Harrison, chairman of Financo, gave his own list of innovators, citing Wal-Mart for its ability to innovate with new formats; Neiman Marcus, for honing an inviting store environment where customers readily return, and Fresh Direct, for creating a new online retail model for delivering food and customer service.