Path: bloom-picayune.mit.edu!enterpoop.mit.edu!snorkelwacker.mit.edu!americast.com!americast.com!americast-post Newsgroups: americast.ibd From: americast-post@AmeriCast.Com Organization: American Cybercasting Approved: americast-post@AmeriCast.com Subject: Executive Update Date: Wed, 25 Nov 92 12:57:53 EST Message-ID: <5.1992Nov25.125753@AmeriCast.com> Lines: 129 11/25/92 TITLE Executive Update Yule Sales Are Likely To Be Real Good This Year Low Inflation Means Merchants Will Move Lots More This Time Around Marilyn Much and Cathleen Ferraro The nation's consumers are about to lavish on retailers something they haven't enjoyed for a few years: a successful holiday shop- ping season. Though the rebound in retail sales will not be as ebullient as the glory days of the mid-1980s, retailers can ex- pect to ring up gains of 6% to 9% over last year, industry pun- dits predict. What's more, those will be real gains Business Conditions - not increases pumped up by inflation. As third-quarter govern- ment data show, unit sales of general merchandise, apparel, fur- nishings and consumer electronics rose between 5.4% and 6.1% over year-ago levels. (That's nominal sales minus the price deflators for each category). And the trend represents an acceleration from the sluggish results of the past three years. Part of the thanks has to go to the vigorous price competition between discount and conventional stores. "We're seeing a bonanza in the making," said Edward Johnson, who produces the Johnson Redbook service on retail sales for Lynch, Jones & Ryan, New York. So much so that early this week, Johnson revised upward his Christ- mas shopping season forecast to a nominal 8% to 9% rise in sales over last year. A Conference Board survey of 5,000 households corroborated this, finding most people intend to increase spend- ing by about 6.5% to $400 this year. Midwesterners and South- erners are most optimistic, reflecting the recession's reduced impact on those regions. Other industry prognosticators concur, saying consumers are starting to act on pent-up demands that have been building for the last couple of years. Best Quarter In Years "The retail recovery will not be as strong as previous post- recession expansions," said Ira Silver, manager of planning and forecasting at J.C. Penney Co., "but it is under way, nonethe- less. As retail sales go up, orders will increase and inventories will expand, which will translate into new hires and increased employment." Industrywide, Silver figures, unit sales for the general merchandise and apparel industry will expand at a hefty 7% in nominal terms and 5.5% to 6% in real terms, for the best fourth- quarter gain since 1988. Women's apparel - a category with particularly strong pent-up demand -will experience the most vibrant recovery this season, says Silver. Mass merchandise discounters, such as Wal-Mart Stores Inc. and Kmart Corp. will cash in on Christmas the most. This burgeoning segment has wit- nessed a nominal 10% improvement in sales for the 1992 first half, while conventional retailers have experienced only a 1% gain. Discounters have watched their retail market share soar from 45% in 1987 to 53% today, according to Johnson. "The consu- mer still wants quality and fashion, but at bargain prices," he said. Many conventional department stores have moved to compete with the discounters by jumping on the value pricing bandwagon. Pen- ney, for example, has cut its prices 3% to 5% across the board. The result has been accelerating sales and profits. "Even with lower prices, we were able to generate enough unit volume to offset the decline and increase our profits," Silver said. Less Optimistic View Not everyone is as optimistic as Silver and Johnson. Chris Peluso, senior manager of the retail group of Deloitte & Touche, New York, expects a mere 2% to 3% nominal growth in unit sales for the 1992 fourth quarter, with real growth hovering at only 1% over last year. "Retailers saw very good sales and profits in October, but whether that will translate into a good Christmas is yet to be determined," he said. "We haven't seen a substantiation of that trend for the first couple of weeks in November." Many retailers are taking the same view - fearing they could get burned for the fourth year in a row. Memories of the last three Christmases are still fresh for many. Five years of strong sea- sonal sales in the mid-1980s gave way in late 1989 when Canadian real estate developer Campeau Corp. couldn't make payments on loans it took on to buy some of the most famous stores in America - Bloomingdale's, Jordan Marsh, Abraham & Straus and Rich's. In order to drum up cash quickly, Campeau divisions began slash- ing prices all over the country - a move rivals were forced to match. Less than a month after Christmas, Campeau's retail units filed for bankruptcy protection. The recession that began in July 1990 and later the looming Persian Gulf war took the punch out of Christmas 1990, again forcing stores to cut prices shar- ply. Much the same was true last year, as a long-awaited recovery failed to materialize. Throughout 1991, in fact, numerous retailers slipped into Chapter 11, including R.H. Macy & Co., Ames Department Stores Inc., Hills Department Stores Inc., Carter Hawley Hale Stores Inc., Paul Harris Stores Inc., Freder- ick & Nelson, Best Products Co., Lionel Corp., C & R Clothiers Inc., Zale Corp. and Seaman Furniture Corp. In the wake of the last three years, most have laid off employees, consolidated divisions and cut special deals with suppliers to enhance their margins. While retailers expect profits to improve, they don't necessarily expect sales to be the impetus for that gain. Most have tried to fatten margins by maintaining leaner inventories in the hope of avoiding markdowns later. Steven Nicolet, president of Creative Confection Concepts, a Midwest candy maker proud of its Mother of All Jawbreakers that "lasts all 12 days of Christ- mas" has seen merchants turn conservative. "Most retailers are staying with the well-accepted buys, and playing it very, very close to the vest," he said. "Chocolate liqueurs from Belgium are just too risky." California The Exception Regionally, California will be the exception. In Southern Cali- fornia, shoppers and retailers remain plain depressed amid con- tinuing layoffs in defense, banking and energy. California ac- counts for about 12% of the nation's total retail activity. Ac- cording to Deloitte & Touche, nearly two-thirds of Southern Cali- fornians expect to spend less this Christmas. The Conference Board study showed the West with the thriftiest spending plans - just $362 per household. This article is copyright 1992 Investors Business Daily. Redis- tribution to other sites is not permitted except by arrangement with American Cybercasting Corporation. For more information, send-email to usa@AmeriCast.COM