NRF POLL: NO BIG REBOUND EXPECTED IN ’96
Byline: Mark Tosh
NEW YORK — Despite some bright spots in home-oriented merchandise, retailers could be in for another year of consolidation, bankruptcies and lackluster sales growth in 1996.
That was the prediction on Monday at the National Retail Federation’s first major general session, “The Economic Agenda and What the Future Looks Like for Retailers.”
The NRF’s 85th annual convention opened Sunday at the Hilton and Sheraton New York hotels and runs through Wednesday.
Bernard F. Brennan, chairman and chief executive officer of Montgomery Ward & Co. and NRF’s outgoing chairman, said in his opening address that the pace of change in the retail industry has become “startling and intimidating.” Among retailers’ problems, according to Brennan, are:
* New retail square footage is outpacing U.S. population growth by a 10-to-1 ratio.
* Deflation in many product categories, which eliminates what used to be called “normal sales growth.”
* A lack of product differentiation, which creates a “sameness in the industry and truly an indifferent consumer.”
* No easy geographical markets to offset difficult markets.
“Our challenge is to stay ahead of the game,” he added.
Arthur C. Martinez, chairman and chief executive officer of Sears, Roebuck & Co., one of three panelists at the general session, urged retailers to reconsider some ideas that may seem self-evident: making stores easier to shop, getting closer to the customer and giving more decision-making power to employees at the store.
Gilbert Harrison, chairman of Financo, a New York-based investment firm, said he expects the next few years will see continued consolidation among retailers, which lowers costs, increases market share and adds operating leverage. “I think you’re going to see a growing consolidation among suppliers,” he added. “Because as retailers continue to get bigger and bigger, suppliers have to be on the matrix or they’re not going to be able to sell to them.”
Asked about the outlook for specific merchandise categories, Martinez said he expects the “strong and secular shift to the home area” to continue this year.
“The apparel business in actual unit terms has not been bad,” he said, adding that price deflation in apparel holds down increases in terms of actual dollars.
“Increasingly, this time-poor customer retreats to her home and is doing everything she can to make that the centerpiece of her life,” he said. “We see in terms of emphasis the home goods area continuing to be very important in 1996 and beyond that, both in durable and non-durable goods.”
Harrison, however, said he thinks the apparel sector is due for a rebound, perhaps as early as this year.
“My opinion is that everybody has 40 suits in the closet and is asking ‘Why do I need to buy a 41st suit?”‘ he said. “But there’s a lot of apparel out there that needs to be replaced. There is some pent-up demand, and I think this demand is going to come into the stores this year.”
To which Martinez responded, “I always hope you’re right, Gil, but only an investment banker would have 40 suits in the closet.”
Martinez said the pace of consolidation on the vendor and the retailer sides makes it more difficult for stores to differentiate their assortments. Although Sears has stepped up its private label business to remedy this, Martinez said, the retailer also is looking for small suppliers that can provide exciting merchandise from a “design and value” standpoint.
“The challenge for all of us is to find those small vendors, those resources with ideas and differentiation from a product point of view that makes the [shopping] experience exciting,” he said. “Here’s a place where the local retailer has the opportunity to set himself apart from the big national chains.”
Responding to a question about the importance of retailers being on the Internet, Martinez said, “It’s not something I’m worried about in the first quarter.”
Panelist Michael J. Boskin, a former chairman of the Council of Economic Advisors, said he is bullish about long-term economic growth but more cautious about the near future. He predicted that disposable income will grow at about a 2 percent rate this year, but most of it will come in the second half rather than the first.
Boskin said he expects continued strength in Northern California, the Southeast and the Rocky Mountain states.
Jane Bryant Quinn, a personal finance columnist and panel moderator, told retailers not to overlook the declining population of adults aged 25 to 34, a group that is shrinking in numbers by about 1 percent a year.
“That is a tremendous loss in buying power, and it’s not easily replaced,” she said. “Baby boomers are spending, but instead of buying stuff, they’re buying economic and financial security.”