Live from NRF: Retail Beats 2005 Expectations, Looks at 2006 Slowdown

New York–The National Retail Federation (NRF) said the retail industry saw better-than-expected sales for both the year 2005 and the 2005 holiday season. But it sees a slowdown for retail in 2006.

Retailers saw a 6.4% increase in holiday sales, according to the NRF, which at $438.6 billion was 0.4% higher than its prediction. Sales through all retail channels grew 6.1% to $4.35 trillion, higher than the anticipated 5.6%.

Regarding the rise in holiday sales, NRF president/CEO Tracy Mullin noted that anticipated rising fuel costs did not become “the Grinch that stole Christmas.” Though the season had a slow start, a late surge, especially with luxury items, rescued retailers.

“The economic indicators simply did not apply to apply to the holiday season,” Mullin said while introducing a session at NRF’s annual convention at New York’s Javits Center. “People wanted to splurge on themselves this year.”

Despite the positive 2005 numbers, NRF is predicting just a 4.7% rise in retail sales for 2006 due to in part to rising energy costs and a slowdown in the housing market. “With the housing market beginning to slow, consumers will be challenged to find new sources of spending power,” NRF chief economist Rosalind Wells said in a statement. “The strong retail sales we saw in the second half of 2005 will be replaced by more conservative spending in the new year.”

The Federal Reserve will play a major role in the consumer’s ability to bounce back in 2006. As Ben Bernanke takes over, NRF expects the Fed policy of vigilance toward inflation to continue. In the near term, underlying inflationary pressures appear to be under control. Productivity is still quite high, and as a result, unit labor costs are low. These trends should give the Fed some peace of mind.

While the NRF is more cautious about the 2006 outlook, several categories of specialty retailing should continue to achieve solid sales growth. They include clothing and accessory merchants, food and beverage retailers, and health and personal care merchants. These categories are expected to see steady sales gains in the 4%-5% range.

Some of the sales trends by type of retail establishment seen last year will continue into this year, but with somewhat smaller increases. The highest growth last year was achieved by building-material stores, warehouse clubs, and electronic shopping.

NRF expects building-related outlets and furniture stores to lose some momentum as housing softens. Electronics retailers should be able to sustain strong demand for their merchandise as product excitement and attractive pricing continue to lure consumers.

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