HOW LONG WILL IT GO?
THE GENERAL CONSENSUS IS THAT SLOWDOWN IS PROGRESSING, AS PREDICTIONS OF STELLAR SALES FADE INTO THE PAST.
Byline: Georgia Lee
While experts disagree about whether we’re actually in a recession, there’s enough talk of it out there to convince people it may be happening. At least the slowdown that began in fourth-quarter 2000 is progressing.
A few economists, such as Jeff Humphreys, director of the Selig Center for Economic Growth at the University of Georgia, think the downturn’s worsening, even over the past few months. He now predicts a 45 percent chance of recession in 2001, revised from a 33 percent estimate in December.
“[The Southeast] is walking a real tightrope now between expansion and recession,” he said. “Even if we avoid recession, we’ll still see a major drop in personal income, due to declining stock prices. Consumers will start to save rather than spend.”
Several contributing factors are to blame for increasingly gloomy assessments.
Monetary policy: The Federal Reserve’s interest rate hikes over the past two years are now taking a toll. Despite recent adjustments, interest rates could still go down another 1 percent by the end of the year, said Humphreys.
Tightening energy markets: Any minor supply disruption could cause already high oil and gas prices to skyrocket.
Layoffs: Some experts say the current rash of layoffs has nothing to do with the economy. Many would have happened anyway, but we’re more sensitized to layoffs now.
The Southeast should fare better than other regions. And given the explosive growth of the past few years, it’s important to put the current slowdown into perspective. The gross national product has improved at record levels in recent years, and Georgia’s gross state product had a peak increase of 6.8 percent in 1998. Any slowdown would appear pronounced against such gains.
Georgia, Florida and North Carolina are the South’s star economic performers, over weaker states such as Alabama, Tennessee and Mississippi. After a decade of unprecedented growth, the Atlanta area should continue to attract new businesses and residents. Since 1996, the city has attracted around 100,000 new residents each year. ]
“The traffic is much more of a concern for Atlanta than the economy,” said Humphreys.
The current scenario presents a few positives for manufacturers. As the dollar depreciates, U.S. products will become more affordable to overseas markets, and the weak dollar should reduce import competition. Port cities, such as Savannah, Ga.; Jacksonville, Fla., and Charleston, S.C., should do well as exports strengthen.
The first quarter of 2001, the U.S. economy will show flat or negative economic growth, with the next quarter slightly better, due to benefits from interest rate cuts, said Humphreys.
Retailers are on the front line of slowdown and expansion, although many have not yet felt the effects.
“Retailers are still speeding through the intersection, but the yellow light is flashing,” he said.
With the exception of a few recent specialty chain standouts, such as Talbots, Chico’s and Kohl’s, which all posted double-digit gains in January, all retail segments should be affected. Analysts say the Gap and Banana Republic have declined due to lagging response to fashion trends, while Old Navy’s prices are creeping up.
“As consumers start paying more attention to their paper wealth and 401K statements, luxury stores will feel the pinch,” said Wendy Liebmann, president, WSL Strategic Retail, a New York marketing/retail consulting firm. “Department stores have struggled for the past few years, and we don’t see a rebirth anytime soon. Discounters will do better, with value pricing, but they will see smaller increases.”
Beyond all the contributing factors, one of the main problems is cultural: consumer glut. After years of good times, everybody just has too much stuff already, said Liebmann.
The challenge for retailers, regardless of size, is to innovate, keep newness flowing and entice people to buy something they don’t necessarily need. This bodes well for smart independent specialty stores who can catch a trend, turn on a dime and give consumers the one-on-one service they crave.
“Specialty stores fall under a Darwinian principle,” said Arnold Aronson, director of retail strategy, Kurt Salmon Associates, an Atlanta-based consultant. “Those that develop a place in their communities and a loyalty with customers will survive. Customers have shown they’ll pay more to patronize stores that offer convenience and service.”
Finding and establishing identity (branding) with consumers is crucial, along with knowing customers and targeting niche markets. Analysts encourage retailers to research and explore untapped markets. Among them:
Seniors: an underserved market with plenty of disposable income that will respond to well-targeted product.
Teens/tweens: This group sees shopping/buying as a national pastime.
Minorities: Particularly the growing Hispanic population, which will increase its spending power as lower-income families acquire wealth.
Baby boomers: The dream demographic for their sheer numbers and sizable bank accounts, baby boomers want, and still aren’t necessarily getting, young looks with appropriate fits.
Retailers may also benefit from a predicted slight rise in unemployment. With jobs less plentiful, staffing may become easier.
Nobody thinks the current downturn is permanent. Americans love to buy things, and that won’t change.
“Our motto could be ‘I shop, therefore I am,”‘ said Liebmann. “We are spending fools, addicted to buying, and we like it.”