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VOL. 125 | NO. 250 | Monday, December 27, 2010

Retail Rebound?

Sales are up, but sustained improvement will take awhile

By Sarah Baker

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Retail sales are looking bright this year, a sign that the pendulum of consumer confidence is swinging back in the right direction.

Holiday sales are anticipated to increase a modest 3.3 percent this year – adjusted from 2.3 percent in November – according to the National Retail Federation (NRF). This year’s uptick follows 2008’s 3.9 percent decline and also tops the 10-year average holiday sales increase of 2.5 percent.

Monthly retail sales figures for November were up 0.8 percent from October and 7.7 percent from the same period a year ago, according a Dec. 14 report by the U.S. Department of Commerce. November’s bump – attributed partially to a 4 percent rise in gasoline sales – marks a fifth straight month of sales gains.

“Retail expenditures seem to be up versus last year, there’s no doubt about that,” said Scott Barton, senior vice president of retail services for CB Richard Ellis Memphis.

“2009 was still a tough year, but generally speaking I do sense that people are spending more this year versus last.”

For the first time since the recession ended, consumers are contributing to growth in a real way, said Chris Low, the New York-based chief economist for First Tennessee Capital Markets.

“Retail sales have risen at a 13 percent annualized rate in the past three quarters, easily setting the pace for the best quarter for retail since before the recession,” Low said in a statement.

Without a doubt, the biggest challenge ahead for retailers and retail landlords is the loss of 7.5 million jobs since the end of 2007. November’s national unemployment rate was 9.8 percent – the second-highest of the year – according to the Bureau of Labor Statistics.

But consumers are increasingly feeling more secure in their jobs. After producing mixed results through the year, the Conference Board Inc.’s Consumer Confidence Index jumped 4.2 points in November.

“Consumer confidence means almost everything to consumption in the United States,” said Grant Thrall, the Martha & Robert Fogelman Family Chair of Excellence in Sustainable Real Estate at the University of Memphis. “They feel confident that they are not going to be worse off in the future, so they can now go back to enjoying consumption as before.”

Consumers had planned to spend an average of $688.87 on their holiday shopping this year, up 1.0 percent from last year, according to the NRF’s annual Holiday Consumer Intentions and Actions Survey. Spending on gifts alone was estimated to increase 2.1 percent for a total of $518.08.

Across the board, most retailers have experienced third quarter gains even up through November, according to a Dec. 2 report from Retail Metrics Inc. More than 30 chains’ same-store sales beat analyst estimates, increasing 5.3 percent compared to a 3.5 percent prediction.

Overall, department stores saw the biggest boost in two years of 2.8 percent. Sales at J.C. Penny Co. – the U.S.’s third-largest department store chain – improved 9.2 percent, beating a projected 3.3 percent.

Clothing sales also rose 2.7 percent in November after a 1.2 percent increase in October.

Perhaps further indicating an uptick in consumer sentiment, NRF’s annual survey revealed the number of people asking for jewelry in 2010 was up 13 percent from last year.

Locally owned Mednikow is seeing the return to discretionary spending first-hand. While the privately held jeweler could not report exact figures, it boasts better-than-expected numbers after two bleak holiday seasons.

“Quality goods are making a real comeback,” said Jay Mednikow. “People want to enjoy the fruits of their labor.”

But not all categories reported good news in November. Auto sales fell by 0.8 percent, building materials by 0.1 percent, furniture sales by 0.5 percent, and consumer electronics and appliances by 0.6 percent, according to SpendingPulse.

Across the board, most retailers have experienced third quarter gains even up through November.

Best Buy Co. Inc.’s net income for the fiscal third quarter-ended Nov. 27 (the Saturday after Thanksgiving) fell 4 percent to $217 million from $227 million last year. Revenue fell 1 percent to $11.89 billion – from $12.02 billion in 2009 – despite Thomson Reuters analysts’ projected $12.45 billion revenue.

While Best Buy benefited from Circuit City’s closing last year, it also is facing competition from online and discount stores. For example, eCommerce saw a 7.9 percent year-over year improvement, according to SpendingPulse.

This year’s Cyber Monday sales exceeded the billion-dollar mark for the first time in history, according to comScore, an Internet data tracking company. Online sales totaled $1.028 billion on Nov. 29, up 16 percent from $887 million on the same day last year.

In addition, online and Web-influenced retail sales for the year reached 46 percent, compared to last year’s 42 percent, according to Forrester Research Inc. By 2014, 53 percent of purchases will be impacted in some way by the Internet. But that’s not to say half of retail sales are going to be someone clicking a button, with the product showing up on their doorstep.

“Ten years ago, there were opinions that the mall and bricks-and-mortar shopping were going to go away in a certain period of time,” said Danny Buring, partner with The Shopping Center Group LLC. “The Internet is affecting bricks and mortar, but they complement each other – people are realizing that you have to have a presence of both.”

Even if price shopping is done online, the most important thing is to buy locally, Buring said, whether one buys a camera from 106-year-old Memphis Photo Supply or a Memphis-area Best Buy.

“There’s a lot of locals that are employed by the chains that are not based here,” Buring said. “The Best Buy store probably employs 150 local people. Even if you order it and pick it up at the store, the store gets credit for the local sale.”

The in-house purchases come more naturally for some retailers than others. While Mednikow has seen an increase in online sales, it is also seeing more customers shop the website for jewelry, customize their selections and bring printouts of the items into the store.

“It’s one thing to buy a book online,” Mednikow said. “Then they have the advantage of seeing it in person, of seeing the sparkle, of things that cannot be communicated, especially in our type of product.”

Memphis-based Fred’s Inc. also channels its goods through the Web. The discount retailer was up 4.7 percent in November after a forecasted 2.3 percent increase and flat September same-store sales. While Fred’s isn’t focused on Internet shopping, customers can go online to view an item’s availability and price. On Dec. 27, the retailer is launching a “click, print, save” campaign as an added value for customers.

The economy has had a huge effect on how consumers shop. A whopping 54.1 percent of them plan to shop for sales more often and 40.6 percent are using coupons more often, according to NRF’s survey. The second most important factor to consumers was customer service, which saw a 5.3 percent bump over 2009 – the highest percentage since NRF began the survey in 2002.

Buzzy Boehme, right, owner of Memphis Photo Supply, talks to customer Craig Estes about a lens during the final week of the holiday shopping season.

“Customer service is one of the main things that we hear that is a driving factor of why people come to Fred’s, because it has that personal feel,” said Ursula Roman, marketing director at Fred’s. “You’re greeted when you come in the store, you’re personally helped throughout the store, and you don’t get that a lot at other chains.”

While older Americans place a primary emphasis on price, younger adults aged 18-24 are twice as likely as other adults to say that they’ll choose a store based on service. And almost half of young adults are using their smartphones to shop for gifts this year, whether they are comparing prices, reading reviews, buying merchandise or finding a nearby store.

Mobile applications also continue to revolutionize shopping trends. The deal-of-the-day service Groupon has spawned more than 200 copycat companies since its launch in November 2008, according to a recent American Express study. Location-based shopping like Facebook Places, Google Latitude and Foursquare offer perks for shoppers who simply show up and “check in.”

“People are using it (mobile technology) to get better prices on whatever they are looking for,” said Barton. “As a result, it’s going to further squeeze margins for a lot of retailers, especially if what you have is pretty much a commodity.”

Pressure is also being put on enclosed malls. For the first time since the early 1950s, no new malls are under construction in the U.S., according to the Urban Land Institute’s 2011 Emerging Trends in Real Estate. Tennessee has the nation’s fourth highest malls-per-capita rate. The only states with higher rates are Connecticut and Rhode Island (both Northern states where people typically shop indoors), and Florida, which has had tremendous population growth and retail expansion in general, Barton said.

Also stunting further retail growth is Memphis’ average retail per capita. The national average is 23 square feet of retail per person, while Memphis’ average topples 30 square feet.

“Retail is a continually moving target – one that’s not caught stationary for very long,” Thrall said. “Memphis’ development history has been one of cannibalization, not one responding to growing demand.”

What impacts retailers impacts neighborhoods. And that, in turn, impact the housing market – they’re all linked together, Thrall said. Consumers are not only more confident in their spending this year, they’re also showing signs of prudency.

Same-store credit card sales declined 1 percent in the 2010 Black Friday period from the same period a year ago, according to Capital Access Network Inc.’s Small Business Credit Sales Report.

Even though it will take several years for consumption to reach mid-2000 levels, it is likely to post a solid rise in the fourth quarter.

“Ninety percent of the news that we’re getting is all good – and then there’s that ‘but’ statement,” Buring said “It’s just going to take awhile.”

PROPERTY SALES 64 87 1,429
MORTGAGES 39 60 1,107