Retail sales and earnings should do well in 2010, but higher taxes, interest rates and savings by consumers could put pressure on stores in 2011.

This story first appeared in the May 5, 2010 issue of WWD. Subscribe Today.

That was the conclusion of retail consultant Walter Loeb of Loeb Associates, who spoke on the retail outlook at a program hosted by the Fashion News Workshop.

Loeb expects sales to rise 4 percent for the year, with the growth primarily in the second half. “Back-to-school sales will be strong,” he said.

Loeb added the fall fashion colors that are predominantly brown, gray and mauve will help boost sales. “Next spring you’ll see a wonderful palette of pastels, which will make retail exciting,” Loeb noted. However, he said uncertainties regarding Chinese currency, tax and interest rates and savings rates could raise questions about the top and bottom lines of retailers.

Yet for the chains that are nimble and innovative, “there are opportunities in this environment.” He cited attention to special sizes and multichannel distribution using social networks as ways to attract and foster loyalty among different customer bases.

The former retail analyst sees stores reducing the number of vendors, but having a better assortment of what their customers want. He also foresees more exclusive brand arrangements at retail, such as the MNG by Mango line for J.C. Penney and Tommy Hilfiger at Macy’s.

However, Loeb does have one gripe about retail today: “The stores should go back to hiring fashion coordinators to give the stores a more unified look.”

Richard Kestenbaum, a partner at investment banking firm Triangle Capital Corp., spoke about how the apparel industry will be affected by manufacturing in China and his belief that, in time, Chinese manufacturers will start buying brands and wholesalers in the U.S.

“For manufacturers, the labor is cheap and plentiful and the cost of entry in China is very low,” Kestenbaum said. He explained that due to production capacity issues, some manufacturers will extend their reach by buying U.S. brands and eventually wholesalers, which could then give them direct connections to specific retailers.

“This time you’ll see more a vertical business, but with a Chinese owner,” the banker said.

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