Signs are mixed in the crystal ball of retail sales for 1995. Receipts continue to rise, but the economy is slowing, according to the Commerce Department, which recently reported that sales in January inched up 0.2 percent. The alleged culprit: rising interest rates.
Despite modest gains, consumers are spending less on durable goods, including autos, which fell 0.6 percent last month. Overall sales have mounted unabated since April, but can it last? What are the prospects for retail sales this year?
Thomas S. Saquella
President,
Maryland Retail Merchants
Association
We think '95 will pretty much be a repeat of '94, looking at a 5 percent to 6 percent increase in sales, which would be a good year, but no kind of record.
There are two caveats to that. If the Federal Reserve continues to increase interest rates, that certainly dampens spending and increases the cost of spending. The other caveat is, if the federal government enacts a substantial middle-class tax cut, that certainly will induce consumer spending. Those are big factors that we don't have any control over.
Growth will exceed inflation. Right now, we're running at about 2 percent to 3 percent above inflation. I think we're seeing essentially the same economy --job growth will continue, income growth will continue -- but it's not dramatic growth.
Apparel sales have been part of the industry that's really not experienced the recovery. That's where we may see increases, simply because the closet of clothes begins to wear out.
Another area is personal computers. They just sold like hot cakes at the holiday season. I think that will continue; there's a market untapped out there for computers.
I think '95 may not be as good as '94, or '93, or '92 for that matter, in furniture and appliances, if mortgage interest rates continue to go up and if home building stagnates.
Otto F. Grote
Analyst,
Derby Securities
The bottom line in terms of retail is, if you are catering to middle America, you better have low prices.
Retailing is a huge industry. Within this category, you have everything from companies doing $100 million to companies doing $50 billion. The issue here as far as retail stocks are concerned is: This is the time in the stage of the market when retail growth stocks begin to move. Growth retailing
is going to command multipliers in this stage of the cycle -- in spades.
The economy is not as robust, so growth retailers are obviously going to report higher earnings growth in relation to nongrowth retailers.
The answer here is, they've got to have a better mousetrap, deliver a better product at a competitive price, better displayed with better merchants. I call it a mousetrap, but it's a niche.
Growth companies tend to be smaller companies gaining market shares, medium-sized companies that are highly specialized in certain areas, like Best Buy.
The staid, larger companies that have innovative formats about one, two decades old -- that mouse trap hasn't come up with anything new. Wal-Mart is the exception; they are big and will continue to grow.
The Fed, it's already had an impact. Retail stocks are already under pressure. Now you see something else happening. The chances are that, yeah, maybe, the Fed has to squeeze once more, but they're not going to put another seven interest increases on us.
William H. Carpenter, Jr.
President and chief operating
officer,
Prime Retail
Who really knows until we get through this cycle? It's really too early. We're only into the year 45 days.
My sense is, it's going to be another strong year for the accessories category, the home category, the shoe category.
I would predict a modest increase this year -- maybe 3 percent to 4 percent, but a lot depends on the weather, a lot depends on
fashion, a lot depends on interest rates. I think with rates more or less stabilized, people feel things are stabilized. The bond market is up, the stock market is up. There are a lot of good things happening in the first 45 days this year.
I don't know if we'll continue to see that growth this year in home furnishings and electronics. '94 was just a real big year. But I believe it'll be stronger than all the other segments. I think if you went down another tier -- unisex, accessories, shoes -- I think they'll have a pretty good year.
Gas prices were up, food prices were up. All these little things have an impact. The point is, your interest rate is costing you more for your mortgage. Where do people cut first? You've got to drive, you've got to eat, you've got to pay your mortgage.
It hits your luxury items. You might only buy two suits instead of three.