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Clear Thinking Group Forecasts Slow General Retail Growth & Tough Year for Home Furnishings

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With consumers facing a host of pressures, retailers can expect 2007 holiday season sales growth to come in at least two percentage points below 2006 levels, according to Clear Thinking Group, LLC, a retailing/consumer products and industrial manufacturing consultancy headquartered here. “We’re looking for holiday 2007 retail sales to grow in the 2% to 2.5% range during the traditional six-week shopping period between Thanksgiving and Christmas, versus the 4.6% gain attained in the same period last year,” said Lee A. Diercks, a partner and managing director in the firm. “There are so many pressures on the average consumer’s wallet that this season will be difficult for most retailers.” Diercks added that the news could be slightly better if January 2008 sales are factored into this equation, given that gift cards have extended the holiday purchasing process to span November through January rather than the traditional six to eight weeks of years past. “When including January 2008 figures, we anticipate that sales for 2007’s extended three-month season will increase in the range of 3% over prior year levels,” he said. This would compare with gains of 3.8%, 6.5% and 6.9% for the extended holiday seasons in 2006, 2005 and 2004, respectively. According to the firm, rising food and oil prices top the list of economic issues that will compress retail sales growth in the fourth quarter. Staple items like bread, milk, meat and coffee are costing a respective 7%, 20%, 8% and 9% more this year than in 2006 Diercks, noted, while crude oil prices are now hovering in the $90 range per barrel and with little relief in sight due to heightened global demand. This higher demand could spark an increase of as much as a 20% in home heating oil and natural gas prices, he stated, while gasoline prices may also spike up during the holidays. Other factors expected to have a negative effect on fourth-quarter retail sales, Clear Thinking Group predicted, include the slowdown in the housing market, which has given some consumers pause as the perceived value of their homes falls in many markets throughout the country, a high level of consumer concern about the possibility of a recession, and the dearth of hot “must have” gift items for 2007. “Besides portable GPS units, we don’t see any broad merchandise categories that really excite consumers,” Diercks observed. However, other categories that should show gains this season include fashion accessories, fragrances, personal care items, books, and gift cards. Conversely, categories expected to see rough sledding include sporting goods, toys, home improvement and home furnishings. In terms of retail channels, internet merchants should again see dramatic growth, with anticipated gains in the 20% to 25% range, the firm projected. As was the case in 2006, free shipping for internet purchases will be prevalent, and discounts and special orders will drive consumers to retailers’ websites. In apparel, department stores should perform better than specialty stores. “Target and Wal-Mart should post increases, but they will not be anywhere near as strong as last year,” Diercks asserted. Turning to hardlines channels, big-box home improvement, home furnishings, and electronics retailers “will have an even tougher time this holiday than last year,” he added. Against this background, Clear Thinking Group’s random poll of retailers across all channels found that merchants are focused on trying to control their inventory levels. “A lot of them have already cut back on orders,” Diercks noted. “It’s going to be a tight season. Nonetheless, we believe that those retailers who provide great gift values, service and convenience will be the ones who will do well this holiday.” About Clear Thinking Group Clear Thinking Group is a national advisory organization that provides a unique perspective on business opportunities and challenges in a variety of industries such as: retail, consumer products, manufacturing, automotive, entertainment, textiles, and temporary staffing services. For further information, visit the firm’s website at www.clearthinkinggrp.com.

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