Live from NRF: Retail Growth Expected to Slow

New York–While retail sales experienced a “stronger than expected” 6.3% rise in 2006, they are forecast to increase a more modest 4.8% this year, Rosalind Wells, chief economist for the National Retail Federation, said Tuesday during the trade organization’s “Big Show” here.

Wells also noted that year-over-year holiday sales increased 4.4% in 2006, falling short of the NRF’s projection of 5.0% growth. In comparison, 2005 holiday sales had increased 6.1% over the previous year’s.

Wells attributed the solid 2006 retail sales to robust consumer spending in the first half of the year. This year, however, “slow economic growth will be reflected in moderate consumer spending and retail sales gains,” Wells said. “The quarterly industry sales pattern will be the opposite of last year, with modest gains early in the year and better increases in the second half.”

Specifically, Wells predicted 2007 retail sales increases of 3.8% in the first quarter, 4.6% in the second quarter, 5.2% in the third quarter, and 5.7% in the fourth quarter.

Holiday sales were hurt by a slow housing market, which caused decelerated business at building material and garden equipment stores, Wells said. Sales at those types of businesses showed year-over-year gains of 20% early in 2006, but those sunk to 4.3% in December. In addition, she said, “an unseasonably warm weather affected winter apparel, but not as much as people thought.” While holiday sales fell below NRF’s projections, Wells said the 4.4% increase is right on target with the category’s five-year average gain.

Foremost among the best-sellers during the holiday season were consumer electronics items, such as iPods, large-screen high-definition televisions, video game systems, and jewelry.

During the holiday season, gift-card sales rose 6.3%, to $24.8 million. Internet sales soared 26%, to $21.7 billion. Online sales, Wells said, will continue to “escalate” in 2007: “It’s been consistent double-digit increases year after year. I can’t imagine that will tail off to any substantial degree.”

Wells said employment and consumer confidence trends have been moving “sideways,” which has slowed income growth. Short-term interest rates remain unchanged at 5.25%, “recognizing that the economy has slowed and that inflationary pressures are lessening,” she said.

Meanwhile, the National Association of Realtors expects new-home sales, which dropped nearly 17% in 2006, to fall another 8.7% this year. A slow housing market, Wells said, hurts the retail industry in sales related to building materials, furniture, electronics, and appliances.

“Current retail trends will persist throughout the year,” Wells concluded. “Luxury retailers will continue to outperform. Online shopping will continue to escalate. Retailers catering to the lower- to midlevel consumer will find achieving sales more challenging. Demand for merchandise will be affected by a soft housing market.”

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