Business

More than half 'just surviving': retailers

But 2019 is anticipated to be strong, barring certain repeat events

Philadelphia Inquirer/TNS

Shoppers walk past a Black Friday advertisement at Cherry Hill Mall in Cherry Hill, N.J., in 2018.
Philadelphia Inquirer/TNS Shoppers walk past a Black Friday advertisement at Cherry Hill Mall in Cherry Hill, N.J., in 2018.
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Retailers generally are considered an optimistic bunch. But a new survey has revealed some sobering results about the opportunities they see ahead or the lack of them.

More than half, 54 percent, of traditional retailers say their businesses are just surviving as they head into 2019, according to the survey by accounting firm BDO of big-box, department stores, discount stores and specialty retailers.

BDO’s survey of 300 C-suite executives found two camps — “survivors” who report being stable and breaking even, and the “thrivers,” who identify as profitable and say they are experiencing robust growth.

“The majority of retailers are stuck in survival mode,” said Natalie Kotlyar, a national leader of BDO’s consumer products practice in a report released Wednesday.

“Playing catch-up in perpetuity is preventing retailers from seizing new opportunities and leapfrogging the competition.”

Here are the challenges that are keeping top executives at U.S. retail companies up at night:

•l The survey found that most survivors are taking a wait-and-see attitude about the prospects of a recession. But of those who identify as thriving, 51 percent are actively preparing for an economic downturn and 52 percent believe retail bankruptcies will rise in 2019.

• They’re all spending money on their e-commerce operations, however one in three thrivers are planning to grow their store counts, including e-tailers.

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• Respondents were confused about whether to join Amazon.com’s ecosystem. About 70 percent said they believe the cons of partnering with Amazon outweigh the pros.

Only 9 percent of retailers see exclusive products as Amazon’s biggest advantage over their business.

• Only 41 percent are planning to significantly invest in improving their understanding of customer behavior over the next 12 to 18 months.

The National Retail Federation, the industry’s largest trade group, said Tuesday that it expects retail sales to rise in the range of 3.8 percent to 4.4 percent this year.

That compares with an estimated 4.6 percent increase in U.S. retail sales in 2018, pending an update from the Commerce Department, which hasn’t yet reported December due to the government shutdown.

Already in 2019, U.S. retailers have announced 1,678 store closures and 1,399 store openings, according to Coresight Research.

And yet, a strong year

Retail is on track for another strong year in 2019 — barring, retailers say, a ramped-up trade war or another government shutdown.

The 35-day partial federal government shutdown has kept the industry from getting a complete view of consumer spending at the end of 2018. Still, the National Retail Federation on Tuesday estimated that 2018’s retail sales grew 4.6 percent over 2017, hitting a whopping $3.68 trillion.

That figure topped the NRF’s forecast of at least 4.5 percent growth for the year.

There’s reason to expect a repeat in 2019. Wages are increasing, consumer confidence is high, and unemployment is low.

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The NRF expects this year’s retail sales to increase 3.8 percent to 4.4 percent over last year, to more than $3.8 trillion.

But industry experts are quick to qualify the good news. With so much uncertainty swirling around President Trump’s trade war, a volatile stock market and the government shutdown, it’s possible that sales could start to sag.

Matthew Shay, the NRF’s president and chief executive, said elected officials should be wary not to alarm shoppers during what could otherwise be a strong year for retail.

“Consumers will spend as long as they’re confident about the future of the economy,” Shay said.

Retailers have been front and center condemning the tariffs since early last fall. Big-box retailers such as Walmart and Target cautioned that levies on Chinese goods could force them to raise prices.

The Retail Industry Leaders Association, an industry lobbying group, argued that any tariffs on consumer goods were nothing more than a hidden tax.

Those concerns aren’t going away. If tariffs on $200 billion in Chinese goods rise from 10 percent to 25 percent on March 1, customers could see price increases, and businesses could lose profits, said Jack Kleinhenz, the NRF’s chief economist.

Kleinhenz said the precise effect of the shutdown is hard to measure. First-quarter spending could be affected by a backlog in tax returns from the Internal Revenue Service.

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But January sales can be tricky to splice anyway. Weather issues — such as the polar vortex — could affect shopping habits, for example.

The shutdown “doesn’t have, at this point, a large impact that we know of on spending,” Kleinhenz said.

Momentum

The NRF’s holiday figures fell in line with sales data from just after Christmas. MasterCard SpendingPulse — which tracks retail spending trends — said holiday sales had seen the strongest growth in the past six years, surging 5.1 percent to more than $850 billion.

For its part, Amazon touted strong sales on millions of its devices and broad use of the company’s free holiday shipping perks. And Target’s comparable sales grew 5.7 percent in November and December.

But come January, not all retailers had reason to cheer. At Macy’s, sales at stores open for at least a year — including online sales — climbed 1.1 percent in November and December.

Macy’s chairman and CEO Jeff Gennette said sales over Black Friday and Cyber Week started off strong. But that momentum fell off before Christmas “and did not return to expected patterns until the week of Christmas,” Gennette said.

Kohl’s also reported that sales at stores and websites open for at least a year, on a shifted basis, rose 1.2 percent in November and December. Over the 2017 holiday season, the company reported nearly 7 percent growth.

As for the rest of 2019, Shay said retailers “have a lot of levers they can pull” to work with their suppliers should the trade war continue. And he expressed confidence that the United States can improve free and fair trade without resorting to tariffs.

“Retailers are in a good place to make decisions that are going to allow them to continue to operate in an uncertain environment,” Shay said, “and address whatever head winds they may face.”

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Mark Cohen, director of retail studies at Columbia Business School, said the holiday season exposed “a tale of two cities.” Some retailers, such as Amazon.com, saw booming sales.

But J.C. Penney, Macy’s and Nordstrom don’t necessarily have new strategies going into 2019 that can help them dig out of last year’s tumult.

Cohen said he also worries that consumers will soon come up against price increases from Trump’s tariffs and other costs associated with government policy, such as if there are cutbacks to the Affordable Care Act.

There’s little room for the retail industry to swallow a 25 percent tariff, Cohen said, without consumers feeling the heat.

“When it all runs its course,” Cohen said, “there is still this cloud that exists and is bringing a darkness across the consumer space.”

The Dallas Morning News and the Washington Post contributed to this article.

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