NRF Predicting a Bear of a Year

Brian Carroll, Carole Sloan, January 24, 2005

New York — A softening housing market will affect sales of home furnishings and furniture, most likely beginning in the second half of this year.

This outlook is part of the forecast for an overall slower spending increase by American consumers according to Rosalind Wells, chief economist for the National Retail Federation.

Wells, at the NRF’s news conference during the group’s annual event here last week, projected consumer GAFS spending for 2005 to increase 3.5 percent, compared with a more robust 6.7 percent in 2004, the highest retail sales growth since 1999. GAFS represents sales from general merchandise and specialty stores selling apparel, furniture, home furnishings, electronics, appliances, sporting goods, hobbies and music.

Wells cited a slower economy, higher energy costs, lack of economic stimuli, higher interest rates and tough comparisons from last year as contributing to the forecast for this year.

As an example, she noted that the growth for the first quarter of 2004 was a strong 9.9 percent. For the same period this year, she projects a growth of 3.7 percent.

Home furnishings and furniture sales strength usually follows housing gains by some six-18 months. While sales in these areas remain strong for the first half, Wells sees a slowing for the second half. Logically, she noted, “If the entire economy is slowing down, all areas will have to take a hit, and home will taper off gradually.”

Recapping 2004’s holiday period, which includes November and December, Wells pointed to home electronics, furnishings and accessories, toys and gift cards as the leading segments. Gift cards, she noted, represent $17 billion, or 8 percent of holiday sales. Online sales — strictly from online companies, not multi-channel retailers — increased 25 percent in the holiday period.

Overall, Wells said, sales in the holiday period increased 5.7 percent, the best since 1999, compared with NRF’s forecast of 4.5 percent.

Beginning this year, NRF’s tracking of retail sales will be broadened beyond the traditional GAFS to include stores that sell food, beverages, building supplies, garden equipment, health and personal care, florists and gifts.

“Retailing is going through a metamorphosis,” explained Tracy Mullin, president and CEO of NRF. “The segments are blurring.” By combining all these segments, the organization feels it will get a more accurate reading of consumers spending activity.

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