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Shopping Centers Today -> April 2003
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ANALYSTS: ECONOMY TO IMPROVE, BUT WILL STORES?
BY DEBRA HAZEL
Barring war or catastrophe, the U.S. economy is likely to pick up in the second half of this year, setting the stage for better holiday shopping than last year, speakers at the National Retail Federation’s 92nd annual conference in New York City said. But retailers must drop their risk-averse ways and innovate, industry watchers warned, while shopping centers need to rethink their anchor structures.
The good news is that U.S. gross domestic product is expected to increase 3 percent this year and 4 percent next year, said Philip Kowalczyk, vice president and managing director of the North America division of Kurt Salmon Associates, a New York City-based retail consulting firm. As this growth takes hold, retailers will benefit in the latter part of the cycle, he told delegates at the conference, which took place in January.
“A merry holiday season should materialize and kick off a strong 2004,” Kowalczyk said.
Meanwhile, Gilbert Harrison, chairman of New York City-based mergers and acquisitions firm Financo, predicted that the Iraq situation would slow sales for the first half of the year. “But tax incentives will create a good back end of the year.”
Expect overall comp-store retail sales to rise about 3 percent this year, said Walter Loeb, president of Loeb Associates, a retail consulting firm in New York City. Discount stores will increase 3 percent to 4 percent, he said, while specialty stores rise 2 percent to 3 percent. Department store sales will lag a bit, running flat to 1 percent higher.
Shoppers will likely spend on electronics (including computers, TVs and smart appliances), recreation and entertainment, and home goods. Apparel sales, too, will probably improve, Kowalczyk said.
Despite any improving numbers, the challenge for today’s retailers is to draw customers through interesting and unique inventory. Many, pushed by the need to keep margins under control, were particularly conservative both in the amount and the types of inventory they carried, hurting holiday sales and post-holiday clearances.
“You can argue that innovation is one of the last things on retailers’ minds today,” said Angela Selden, a managing partner at Chicago-based management consulting firm Accenture. But Kohl’s, Target and Williams-Sonoma are among the chains that have succeeded with such innovation, she said.
Other panelists argued that shopping centers themselves must find new ways to draw customers too, since most anchors lack excitement.
“I’m worried that malls are not getting traffic anymore,” Loeb said. “Sears is falling apart.”
Though such recent developments as Downtown Disney, Anaheim, Calif.; Easton Town Center, Columbus, Ohio; and mainstay Forum Shops at Caesars, Las Vegas, are doing well, traditional malls face challenges that include the potential closure of music retailers and other struggling tenants.
“I don’t know how malls get out of it,” said Lawrence Haverty, managing director of State Street Research Management Corp., Boston. “If you look sociologically at what kids are doing, they’re not going to the malls. Malls will continue to have problems.”
The future of the mall may lie with the use of restaurants and entertainment elements as anchors and with the lifestyle format, notes Richard Jaffe, an apparel retail analyst at UBS Warburg.
But no one can succeed if retailers do not offer goods the customers want. Retailers must return to the idea of merchandising, some say, allowing staff to take risks and fill their stores with new product. Chico’s, Forever 21, H&M, Kohl’s and Target have gained market share with exclusive product.
“It’s a forgotten art,” Haverty said. “It’s called merchandising.”
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