Retailers Can Expect 2.5% Increase In 2010 Sales - Report - WSJ

By Andria Cheng


Helped by positive economic signals and improved consumer confidence, retailers should see a 2.5% pick-up in sales this year after a drop by the same percentage amount last year, according to trade group National Retail Federation.



Key economic indicators such as the housing market and employment are beginning to show positive signs, which will lift consumer confidence throughout the year, the Washington-based trade group said Tuesday.



Other factors including strong exports, a turnaround in the inventory cycle, and federal government spending also should aid retailers' results, NRF said. Consumer spending will lag behind overall economic growth, Wells estimated, but will continue to expand at a modest 2% to 2.5% rate.



"While we still expect shoppers to continue to be frugal with their discretionary spending, retailers will soon be able to reap the benefits of leaner, smarter inventories and a year and a half of pent-up consumer demand," said NRF's Chief Economist Rosalind Wells.



The outlook came after retailers reported better-than-expected holiday season sales and limited the profit-eroding discounts that had hurt their performance in 2008 following the fallout of the financial markets.



Retailers from Kohl's Corp. (KSS) and TJX Cos. (TJX) to Saks Inc. (SKS) and Tiffany & Co. (TIF) have either reported better-than-expected holiday sales with some raising their profit outlooks while Target Corp. (TGT) said this month that it's resumed repurchase of its shares, in a move that analysts said signaled the retailer's improved confidence about its outlook.



Still, there are headwinds facing retailers, including higher gasoline prices and an unemployment rate still at a 10% high.



While the percentage of consumers who said bills and debt have caused them to spend less declined to 23.1% from 33.2% last year, those citing gas and home heating bills as causing them to cut spending rose to 18.9% from 8.2% a year ago, according to an America's Research Group and UBS survey of 1,000 shoppers conducted earlier this month. On a bright note, respondents said they are feeling more secure in their jobs, 69.4% versus 54.7% in November, which may be further supportive of improved consumer spending, UBS said. The percentage of shoppers who purchased a new item not on sale also jumped to 15.5% from 4.8% last year.



The survey also showed many consumers are choosing to pay for purchases with cash-type payments instead of a credit card to remain disciplined in shopping.



"The consumer is beginning to loosen up their wallets with incremental discretionary spending likely driven by a sense that the worst of the economic downturn is over, yet consumers seemingly remain very disciplined in their shopping behavior," UBS said in a report Tuesday.



The brokerage firm said the data led it to be selective with exposure to retailers selling non-essential things. Retailers that cater to higher-income female customers--AnnTaylor Stores Corp. (ANN), Chico's FAS Inc. (CHS), Talbots Inc. (LB), J. Crew Group Inc. (JCG), and Anthropologie owner Urban Outfitters Inc. (URBN)--will likely fare well. Teen retailers such as American Eagle Outfitters Inc. (AEO) that focused on denim should also do well.



On the branded apparel and shoe side, Nike Inc. (NKE) is expected to be a winner with the percentage of shoppers who said they plan to buy Nike as part of their athletic apparel and footwear purchase rising to 45% from 34%, UBS said.



Among other retailers, UBS sees Home Depot Inc. (HD) taking share from Lowe's Cos. (LOW). It also favors Target, which it said has experienced an encouraging resurgence and relevance with consumers even though larger rival Wal-Mart Stores Inc. (WMT) still claims a bigger share of consumer wallet.