Retailers Seeing Worst Start Since 1996

Retailers now predict a gloomy shopping season ahead — following an already dismal December shopping season.

Even in January, when consumers could take advantage of clearances and massive markdowns, shoppers still didn’t bite.

"Consumers are worrying more and shopping less — a result of the broad economic concern about a recession," Michael Niemira, chief economist for the International Council of Shopping Centers, told MarketWatch.

"As a result, we have pared down our monthly sales expectation for the industry to a meager 0.5 percent — one of the worst January performances since 1996."

Chain-store sales increased by 0.7 percent on a week-over-week basis for the week ended Jan. 19, according to the International Council of Shopping Centers and UBS Securities. On a year-over-year basis, sales were up 1.6 percent.

Merrill Lynch also cut its 2008 U.S. economic growth forecast in half and said the economy is likely to contract over the first three quarters due to the housing slump. The firm predicts the U.S. economy growing just 0.8 percent in 2008, down from an earlier forecast of 1.6 percent.

The retail industry has been hit hard with declining home prices, tighter lending standards for loans and increasing gasoline and food prices.

Last week, the government reported shoppers cut back their spending by 0.4 percent in December, making 2007 the weakest year for retailers since 2002, the Associated Press reported.

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Consumer confidence, as measured by the RBC Cash Index, declined in January to its lowest point in figures dating back to 2002.

"Retailers expect a tough January following a similarly tough December," said Michael Niemira, ICSC's chief economist, in a note to clients, AP reported. "The early readings seem on track with that expected softness in sales."

Michigan retailers said they are cautious in their first quarter projections since the holiday season was disappointing.

According to the Michigan Retail Index, a joint project of Michigan Retailers Association and the Federal Reserve Bank of Chicago, the overall retail industry's three-month outlook remains positive. However, the level of optimism is at its lowest point in seven years.

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Holiday sales were disappointing for the majority of retailers, who went into the season expecting, on average, a 2.2 percent gain. However, only 34.5 percent increased sales, while 49.1 percent experienced declines and another 16.4 percent reported no change.

However, nearly a fifth of the industry – 19.7 percent – rang up holiday sales increases greater than 5 percent, while another 14.8 percent recorded gains of 0.1 percent to 5 percent.

"Retailers expected a tough season, and it was," said James P. Hallan, MRA president and CEO. "Given the many economic challenges facing retailers, it's remarkable that half of them did as well or better than the previous year."

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