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NRF Bets on Second Half of 2008

New York — The furniture and home furnishings segment of consumer products will face the biggest challenge in 2008, as a result of the negative impact on these businesses by the sluggish housing market, according to the Retail Sales Outlook report.

This prediction was part of the general merchandising forecast in the Outlook, presented by the National Retail Federation during its annual convention here in late January. Overall, said NRF chief economist Rosalind Wells, "2008 will increase 3.5% from last year, with a slower first half pace picking up in the second half."

Retail sales (which in this model exclude automobiles, gas stations, and restaurants) for the first half are projected at 3.2%, followed by a 3.8% gain in the second half. The 3.5% increase does not include online sales, which Wells sees increasing at a much stronger level "but still it only represents 7% of total sales of general merchandise." GDP, she forecast, will increase 1.5% in the first half and 2.2% in the second half.

Commenting on the home furnishings environment, Farooq Kathwari, ceo of furniture retailer Ethan Allen and chairman of the executive committee of NRF, remarked, "Retailers suffer from the disease of thinking same store sales by itself is a great solution. It isn't. You have to grow sensibly." His advice is not to pursue sales increases at the expense of margins.

Looking at recent years' performances, Kathwari noted, "The tremendous growth in housing gave a tremendous boost to mass retailers" — a situation that now has changed dramatically.

Addressing his company's performance in 2007, Crate & Barrel ceo Gordon Segal noted at the annual Financo dinner during NRF week, "2007 was an amazing year with nine great months. All of a sudden, Christmas disappeared."

Adding to the uncertainty about this year, "There is little sign of the housing situation bottoming out," Wells stated, "job growth has slowed" and there are the added challenges of increased unemployment and higher energy and food costs. Overall, the mid- to low-income segments of the population will be the hardest hit with the result that retailing may trade down and discount even more heavily, she added.

Segments of the general merchandise arena that should have a more positive performance this year will be electronics, "which have exciting new products," and personal care." Clothing and accessories will have average sales gains.

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