2015 RETAIL SALES FORECAST

A WORLD OF POSSIBILITIES

An inside look at the health of the retail sales economy now—and into 2016

BY ERINN MORGAN

When the National Retail Federation (NRF) released its 2015 economic forecast recently, retailers across the country certainly breathed a sigh of relief.

The forecast projects that retail industry sales (which exclude automobiles, gas stations, and restaurants) will increase by 4.1%, up from the 3.5% growth seen in 2014. This increase would mark the biggest annual growth since 2011, when retail sales for the year increased 5.1%.

“Overall, we ended 2014 with stronger growth and that really set the stage for 2015,” says NRF president and CEO Matthew Shay. “It was a very positive foundation to go forward this year to give us some momentum into the coming year.”

In addition, retail sales in January 2015 alone came in 7.7% ahead of January 2014, the strongest month-over-month increase since 2005. On the virtual front, the NRF also announced that it expects non-store sales to grow between 7% and 10% in 2015.

“Already facing far fewer obstacles than this time last year in terms of growth opportunities, retailers are optimistic about the potential that exists for healthy growth in retail sales and consumer engagement in 2015,” says Shay.

But he also notes that even with a very positive outlook for the year ahead, the retail market isn’t yet quite out of the woods. “In order to see continued momentum we need a commitment from our leaders in Washington to pass legislation that will encourage investment, create jobs, and set us on the path toward sustained, long-term economic growth,” Shay adds.

BOOMTOWN 101

Why is the retail economy seeing increased growth—with even more boom expected in the latter part of 2015 into 2016?

There are many things influencing the boom in retail sales. Improving employment, increasing disposable personal income, and notably low prices at the gas pump have left consumers with more discretionary income.

One of the biggest resulting benefits of the healthier economy is a notable boost in consumer confidence. “Consumer sentiment is at an all-time high,” says Shay. “There are improving prospects for jobs and wages. Gas prices, for the moment, remain low—which is putting money back into the pockets of every U.S. consumer. So, we think the ingredients are there for a more sustained and robust expansion.”

In fact, according to the Conference Board Consumer Confidence Index, consumer confidence rose to 101.3 in March 2015, up over 98.9 in February 2015.

THE WILD CARDS

According to the National Retail Federation’s chief economist, Jack Kleinhenz, there are still some factors impacting sustained economic growth throughout the next two years. “There are a few wild cards that retailers will need to keep an eye on, like global economic growth, energy prices, and even inflation,” he says. NRF president and CEO Matthew Shay also points to worldwide economies as one of the issues to watch.

“This month’s increase was driven by an improved short-term outlook for both employment and income prospects,” says Lynn Franco, director of economic indicators at The Conference Board.

According to the NRF, gains in equities and housing have also boosted net worth to record levels, helping consumers feel more confident about spending. Wage and salary growth has been in the range of 2%, which is expected to continue through 2015, a boon for retail sales.

Americans are benefiting from a pickup in wages, jobs, and gains in the U.S. stock market. Economic slack is being reduced—and consumers are starting to feel real relief. “We still, however, have a ways to go in order to achieve sustainable economic growth,” says NRF chief economist Jack Kleinhenz.

CARPE DIEM

As the tide of retail sales rises, it’s important for businesses to catch the wave. According to a recent economic trends reporting newsletter produced for The Vision Council by ITR Economics, the consumer will continue to feel less sensitive to prices later in 2015 and into 2016.

As consumer confidence buoys and discretionary incomes rise, retailers, in particular, are trying to get a piece of household budgets.

“Consumers only spend about 35% on goods, and the other 65% on services,” says Kleinhenz. “We are now see a relief on pent-up demand on services, but we had the pent-up demand realized for goods right out of the recovery.”

Kleinhenz suggests that retailers have to continue trying to do what they do—“trying to get the best product at a good value at a price that can be accepted,” he says.

Focus marketing strategies on building your brand, ITR Economics recommends. Identify your business’ competitive advantages—and communicate them to existing and potential customers and patients. If you carry premium products, make sure your staff can explain why those products are worth the price. This strategy will pay off with a consumer that is less price resistant but intent on getting the best deal.

“Price continues to be a key factor and consumers are looking for the best price created by competition,” says the NRF’s Shay. “With the ability for them to do comparative shopping 24-7 on the Internet, we will continue to see very competitive pricing.”

Finally, be sure your business—and staff—is prepared to keep pace with the increased level of retail sales that is projected for the future. Know that your business may receive a pleasant bump in sales and that higher-end products may possibly become more appealing to more consumers than they were during the recession.

THE BAD NEWS

Every silver lining usually has at least one dark cloud. The economic boom that is projected to happen in 2015, 2016, and even into 2017, is also expected to slow down after that.

“We expect 2016 to 2017 to really be the last, strong boom in the U.S. economy for some time,” says Jim Chappelow, an economist at ITR Economics, which publishes a quarterly economic trends reporting newsletter for The Vision Council. “By late 2018 and heading into 2019 we see downside risk of a recession, somewhere on the order of the 2001 negative cycle.”

The factors that will bring the economy into check include the fiscal pressures of debt, rising interest rates, and volatile pricing for commodities and industrial goods in the economy resulting from uneven expansion. “[These] will all play a part in the recession and the years beyond,” says Chappelow. “Our advice is that it will be critical to take maximum advantage of this next boom period while it lasts.”