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After hitting the nail on the head with its holiday season retail forecast, the International Council of Shopping Centers (ICSC) said yesterday they expect retail sales will rebound with a 3.9% increase in 2010. ICSC initially forecast a gain of 1-2% for holiday (November-December) shopping center-inclined sales growth back in September, and the final tally showed a 1.8% gain. The company noted it was not a particularly strong season, but it was better than a lot of analysts predicted and a substantial improvement over the prior year’s 5.6% plunge:
“Nonetheless, this holiday‐season‐sales performance set the foundation for a stronger 2010 pace of retail spending. ICSC’s outlook for 2010 reinforces this message with a 3.9% expected gain in 2010’s shopping‐center sales growth, following a 2.4% drop in 2009. Although ICSC does not expect sales, anytime soon, to rival the past boom spending years – when sales grew in the 5‐6% range – the 2010 expectation is one marked by improvement in all segments of the industry as the recovery continues to gain steam. Let the recovery roll on!”
This lines up with the projection by Mark Zandi, chief economist of Moody’s Economy.com, who said at the National Retail Federation’s Annual Convention that he expects retail sales to rise 3-4% in 2010. He noted that gains will be largely dependent on improvements in the employment and housing markets, but noted that regardless, “The economy is looking measurably better than a year ago, and it will be measurably better a year from now,”
Normally we are skeptical of predictions, especially in times of such uncertainty, but Mr. Zandi has been extremely prescient about the retail outlook during the recession. Note the testimony he gave before the U.S. Senate Budget Committee regarding the proposed stimulus plan back in November of 2008:
“More than in past recessions, the financial pain of this recession is being felt by all Americans, from lower-income households losing jobs to affluent households with diminished nest eggs. This is evident in the sharply weaker sales at high-end retailers such as Nordstrom, Neiman Marcus and Bergdorf Goodman. Usually the wealth effect is so small that it can be determined only econometrically; now it is potent enough to be apparent visually. Since the housing bubble began to deflate, the link between retail sales and house prices has been striking. Falling house prices appear to curb retail sales with a lag of about six months, as homeowners do not immediately adjust their spending to a change in housing wealth. The current declines in house prices suggest that this Christmas will be as tough for retailers as any since 1992. Moreover, if house prices decline substantially further as expected, then retailers’ troubles will last through Christmas 2009.”
Compare and contrast this with analysts who have been speaking of “pent-up” demand and anecdotal evidence of a retail recovery, and you can see why we are fans of his fact-based analysis. After an extremely trying 2009, we agree that modest improvement is on the horizon for the retail industry. However, with expectations of an elevated unemployment rate and continued declines in house prices through the middle of the year, don’t expect spending to reach pre-recession levels anytime soon.
While same-store sales results were seen as relatively strong for most retailers during the holidays, we will get a much clearer picture of performance when companies report fourth quarter and full-year results in the coming weeks. We will be looking closely at margins and profitability, but more importantly will be focusing on expectations and outlooks from executives for the year ahead.
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