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Slowdown in realestate may hurt retail sales Original Source Link: (May no longer be active)
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Posted on Tue, Jan. 17, 2006
ECONOMY
Housing market may crimp retail
The National Retail Federation forecasts that sales will slow slightly in 2006 because of a softening real estate market.
BY ELAINE WALKER
ewalker@MiamiHerald.com
NEW YORK - Rising energy costs, coupled with a slowdown in the housing boom that has fueled South Florida's economy and other markets across the country, is likely to put a crimp in retail spending in 2006.
That was the outlook presented Monday at the National Retail Federation's annual convention. The normally optimistic group is tempering its forecast this year, calling for a 4.7 percent growth in 2006 retail sales down from a 6.1 percent gain in 2005. Real consumer spending, which rose 3.7 percent last year, will increase only 2.8 percent this year.
''While we don't expect the housing bubble to burst, we are beginning to see some leaks,'' said Tracy Mullin, president of the National Retail Federation.
As home prices have skyrocketed in South Florida and around the country, consumers in recent years have been cashing out. They have turned to a combination of home equity loans, mortgage refinancing and capital gains from home sales as a way to fund both home improvements and other spending.
''As interest rates go up, people are going to find it more loathe to take out home equity lines of credit,'' said Rosalind Wells, chief economist for the National Retail Federation. ``Consumers are not going to feel as anxious to tap into their home values.''
EXTRACTED MONEY
Freddie Mac estimates that about $205 billion was extracted from home values in 2005, up from $142 billion in 2004. A study by Federal Reserve economists found that money from home values added about $700 billion to economic activity last year, which translates into as much as 8 percent of total consumer spending.
That's been good news for retailers, particularly building material stores, warehouse clubs and electronics retailers, which reported the best performances last year, including regular double-digit increases.
As the housing market slows, Wells expects building material stores and furniture stores to be the first to see the impact on sales. By comparison, she expects relatively strong performances in the areas of electronics, clothing, accessories, food and beverage, and health and personal care.
''Everyone's increases will look a little more modest, but they will still outperform the average,'' Wells said. ``We're looking at a slowing of consumer spending, nothing dire, not a recession.''
Other industry analysts said Monday that in 2006 the key to success for many retailers will come from those who do the best job of understanding their consumer. Some who have succeeded at this in recent years include Nordstrom, Neiman-Marcus, Chico's and Best Buy.
''It used to be all about the product,'' said Janet Hoffman, managing partner in charge of North American retail for Accenture. ``Now, it's changed to being all about understanding the customer and what do they want to buy? It's about really getting inside the consumer's mind.''
APPAREL INDUSTRY
Kurt Barnard, president of Barnard's Retail Consulting Group, expects 2006 will be a difficult year for the apparel industry.
''There's a lack of newness, nothing exciting,'' Barnard said. ``Apparel is going to be a stick in the mud.''
But Federated Department Stores Chairman Terry Lundgren still remains optimistic about the outlook for 2006, particularly in Florida, where the company owns Macy's and Bloomingdale's. ''Florida is a great business that continues to grow,'' Lundgren said.
Retailers are coming off a 2005 holiday season, which turned out better than at least some expected. Overall sales for November and December increased 6.4 percent over 2004, with consumers spending a total of $438.6 billion, according to the National Retail Federation. Same-store sales growth increased a more modest 3.2 percent for U.S. chain retailers, according to the International Council of Shopping Centers.
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