Retail Forecast Mixed but Stronger for 2012
Prepare for 2012 to be a year of opportunity, tough competition and sluggish but moderate growth, said analysts and retailers.
“2012 will be a year of fairly slow growth,” said Kimberly Ritter-Martinez, an economist with the Los Angeles County Economic Development Corp. However, bright spots will increasingly break through the gray skies of 2012. “It will be stronger than 2011,” Ritter-Martinez said. “Barring a meltdown in Europe, the U.S. should do well in 2012.”
Just like the past year, consumer spending will be constrained by considerable debt load, the economist added. But with consumer confidence increasing and some segments, such as healthcare and white-collar employment, showing growth, Ritter-Martinez expects retail sales will rise.
California employment is forecast to grow by 1.7 percent, and California’s retail employment force is predicted to grow 1 percent, according to the UCLA Anderson School of Management. Fashion retail will benefit with more people working. Fashion retail sales are expected to grow 5.4 percent, according to a forecast from Chapman University’s George L. Argyros School of Business and Management.
Boutique retailer Alan Hall expects a good year because the discretionary shopper returned to his three Southern California stores in 2011. He runs the Muse boutique in Laguna Beach, and the San Diego and Long Beach boutiques operate under the Eden nameplate.
“We saw a 30 percent increase in sales over last year in 2011. Primarily, we saw our power shoppers dropping $1,000 without concerns for prices and discounts,” Hall said. “That customer had been missing in the past two or three years.” Hall’s power shoppers returned thanks to a cultural shift, he said. After a couple of years of frugality being the dominant lifestyle, it’s cool to be seen shopping again.
He forecast a 10 percent increase in boutique sales in 2011, as his stores continue to regain market share lost during the Great Recession. But the campaign to sell more product is tough, Hall said. Many people demand discounts—despite his stores’ policy to not offer them.
Cotton down, China up, retail goes mobile
The fashion business will continue to benefit from the decline in prices in cotton. In 2011, cotton prices spiked to their highest level since the American Civil War. The skyrocketing prices sent retailers and manufacturers scrambling to find cotton alternatives and ways to cut corners.
But a pound of cotton decreased by 55 cents in the 2011/2012 cotton-crop year compared with the cotton-crop year of 2010/2011, according to trade group Cotton Inc. (The cotton industry measures growth in crop years. A year starts in August, when cotton seed is planted.)
The current price is still more expensive than 2009, when a pound of cotton was priced below $1. But the decrease in cotton prices should give manufacturers and retailers a chance to relax and increase their margin, said Jeffrey Van Sinderen, a senior analyst at Los Angeles–based financial-services company B.Riley & Co.
But the fashion industry will see no reduction in foreign labor costs in 2012, Van Sinderen said. Labor costs in China show no sign in decreasing, and some manufacturers will look to source from countries with lower labor costs.
Sales from e-commerce and mobile-phone commerce will continue to skyrocket in 2012. E-commerce is forecast to grow 10 percent annually from 2010 to 2015, market-research group Forrester Research predicted.
Mobile commerce is forecast to enjoy an annual growth rate from 2011 to 2016 and will reach $31 billion by 2016, according to Forrester. Every retailer will have to develop new m-commerce and, even, tablet-commerce capabilities, said Casey Chroust, executive vice president for trade group Retail Industry Leaders Association.
“It has grown to such significance; it has become ‘a must’ in order to have an effective retail business,” Chroust said. However, bricks-and-mortar stores will continue to be the dominant retail channel, he said.
The increasing popularity of e-commerce is a factor in retail real estate, said Larry Kosmont, founder of real estate advisory firm Kosmont Companies. With more business from e-commerce, retailers need less storefront space to make their margins. So retailers will close some of their storefronts in 2012, and others will downsize remaining storefronts. It points to tougher times for landlords. “There is likely to be more vacancy,” Kosmont said. “And there will be less credit-worthy tenants.”
For Los Angeles label Lyric Culture, the more things change, the more they stay the same. Companies doing well this year will draw lessons from surviving the Great Recession and making the most of the bustling pre-recession economy, said Hanna Rochelle, the company’s founder. “There’s always a ton of opportunities, confusion and chaos. That’s always been the case for the retail business.”
Her label changed its business from manufacturing T-shirts that retailed for more than $100 to making shirts that retail for no more than $48. Rochelle also expanded the brand’s business from selling to boutiques to selling clothes to mass retailers such as WalMart and expanding into new categories, such as accessories and blankets, to find new markets.
If there is no easy money to be made, Rochelle said, at least the year started off on the right foot. “The mood is positive,” she said. “People are positive after coming off a great Christmas season. All of my clients beat their projections for the holidays, and they are feeling a lot of momentum.”
