WASHINGTON — Who thinks American needs more stores? The Bush administration.
As part of its economic recovery mantra, the White House wants to see more capital investment, but retailers aren’t all biting.
In a closed-door meeting Wednesday at the White House, Bush administration officials exhorted several dozen retail executives, in town for a National Retail Federation government affairs meeting, to open new stores to boost the economy.
The call for stepped-up capital investment came from Kathleen Cooper, the Commerce Department’s undersecretary for economic affairs, and R. Glen Hubbard, chairman of the National Economic Council, who offered fairly upbeat prospects for the economy to continue digging itself out of recession, according to several people in attendance.
“We don’t think everything is set in stone for the best recovery we could hope for, but we are encouraged,” Cooper was quoted as saying, while Hubbard told the group, “The wild card is investment.”
Hubbard and Cooper had a parley with Liz Claiborne Inc. chief executive officer Paul Charron, who, according to several accounts, told the Bush administration officials: “I’m not the field-of-dreams type management style,” arguing that it’s unwise to build stores in a still uncertain economic climate and hope shoppers will come. Charron could not be reached for comment.
According to a Cooper spokeswoman, who attended the meeting, the administration officials weren’t advocating a just-go-ahead-and-open-new stores approach. The spokesperson said Cooper frequently emphasizes how “business investment will have to drive the economy” as it recovers, however she doesn’t advocate “to go out there and make unwise investments.”
After the economy struggled with recession last year, it showed a dramatic rebound in the first quarter, posting a 5.6 percent increase. However, Hubbard told the retailers to expect growth in the second quarter to slow to 2.5 percent and then increase to 3.5 percent in the third and fourth quarters, with growth accelerating into 2003. He told the merchants to expect “robust consumer spending” as the economy strengthens.
There are already 19.9 square feet of retail space per person in the U.S., based on the International Council of Shopping Centers’ figure of 45,721 shopping centers containing 5.68 billion square feet of gross leasable area. Some analysts, like Dana Telsey, senior managing director at Bear Stearns & Co., said this year is seeing stores go out of business, reassessing productivity of existing sites and slowing down the openings. About 52 million square feet of retail space could close by the end of the year, she said. Consumer spending accounts for two-thirds of all economic activity. With some exceptions, including at mass merchants, sales have been tepid. Commerce’s latest figures show sales at clothing and accessory stores in May were down 2.8 percent against April and at departments stores were off 2.2 percent for the period.
Charron had company among his retail brethren in keeping the breaks on expansion.
“There’s no question our growth and our future is in constantly following our marketplace, and marketplaces are growing and shifting all the time,” said Ed Goldberg, vice president of consumer and government affairs at Macy’s East, part of the NRF delegation. “Obviously the last year and a half has been very difficult and we believe we have to see all of the recovery trends before we really can start to make those investments.”
Robert M. Benham, president and ceo of Balliet’s, a single-unit designer retailer in Oklahoma City, said business has been good — “the high end continues to rebound in the smaller markets,” he said — but he’s not moving forward to open a second store. “Those plans are on hold right now until we see how everything is going to shake out,” he said.
Benham said the current economy differs from the economic downturn of the early 1990s. “It’s different because of the terrorism aspect,” he said. “It’s, `Is the other shoe going to drop?”‘
However, Benham said terrorism needn’t always spell doom for business. He recalled how he posted record sales for April in 1995 after the devastating Oklahoma City bombing nearby. “After a day or two of complete shock and being saturated with TV, people went out to shop,” he said.
But Target Stores remains bullish and is still expanding.
“I can’t speak for the industry, but it’s a good retail climate for Target stores,” said Nathan Garvis, vice president for government affairs, who attended the NRF confab. “Our retail strategy seems to be meeting a consumer need that is strong right now.”
Target this year is planning a net increase in square footage of about 12 percent and officials expect to expand at a rate of 8-10 percent annually thereafter. Last year, the Minneapolis-based chain posted year-over-year sales growth of 8 percent.
Expansion is also on tap for Talbots, whose president and ceo Arnold Zetcher attended the White House gathering.
Despite a 12 percent decline in net income for the first quarter, the chain plans to open 82 new stores this year. Last year, Talbots sales were up 10 percent.
Meanwhile, before heading to Capitol Hill on Thursday to lobby on issues such as bankruptcy reform and trade expansion, executives heard from some lawmakers on retail issues and from Labor Secretary Elaine Chao. The secretary restated her retail-friendly agenda and received kudos for not blaming stores as the cause of garment sweatshops.
“The last time we were in the room with the secretary of labor in the fall of 1995, we… were accused as the retail industry for being the source of the problem,” said Robert Hood, vice president and associate general counsel of stores and catalog for J.C. Penney Co.
Hood was referring to Robert Reich, President Clinton’s labor chief and his antisweatshop campaign that accused the industry of underpaying contractors in order to keep prices low.