Retail spending showed some life

But if high unemployment continues and taxes increase, consumers might shut wallets

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2012 OUTLOOK

• Sales figures in 2012 will be close to those seen in 2008.

• Retail spending will continue to grow but not at a rate as robust as seen in 2010.

• Discounters, wholesale clubs and e-commerce retailers will continue to gain market share, possibly reflecting a permanent shift in spending habits.

Higher consumer confidence and recession fatigue combined to keep total retail sales positive throughout 2011, continuing an upward trend that began in 2010.

As I predicted last year, 2010 retail store sales finished up 3.99 percent over 2009. In the second quarter of 2011, total retail sales were up more than 4 percent over the same quarter of the previous year, according to the Washington Department of Revenue. We expect that 2011 finished with an increase of around 4 percent. This growth is a positive economic sign, but we have a long way to go to reach the more than 12 percent year-over-year total sales growth which occurred in 2005.

Americans and Clark County shoppers are still jittery about spending, partially because of continued weakness in the job market. A variety of factors affected spending growth, which was inconsistent and unpredictable during the year. Though some pent-up demand resulted in strong sales advances in the first two quarters, the final half of 2011 showed more modest growth. At the end of the year a good percentage of shoppers said they were buying nongift items for themselves and their families, perhaps replacing items that were worn or which they waited to replace during the recession.

Some retailers are well-positioned to absorb a lower rate of sales growth; they have adjusted inventories, both in the amount of merchandise they carry and types of goods. Store owners are interacting with customers more to understand their interests and needs. Service has become paramount due to competition from online retailers, which have had a major impact on brick-and-mortar stores.

Shopping has become very competitive, with customers browsing online before stepping into a store.

Best Buy now looks like a showroom. Customers come to see and touch merchandise they later order online, and not always from Best Buy. Amazon has aggressively taken sales from other retailers.

Increased gas prices mean many consumers are less able to spend, and they take to the Internet to get free shipping and significant discounts.

For retailers, free shipping can significantly cut into profits.

Luxury sales are the shining star of retail. Sales in this category dived in 2009 by 9.1 percent, but have shown a strong recovery in the past two years.

Overall weakness in chain store spending reflects a slowdown in apparel sales. Wholesale clubs such as Costco averaged a 10.8 percent increase over 2010, and discounters such as Target and TJ Maxx have continued to show sales improvement.

Late last year, Wal-Mart Stores Inc. finally ended nine consecutive quarters of declining sales with a slight uptick. Its previous core customer base of cost-conscious shoppers switched to the Internet and dollar stores during the recession and Wal-Mart has had difficulty gaining them back. Its latest strategy is to hold back on passing along the full cost of food inflation to customers, which drives shopper loyalty but has strongly impacted profits. More than half of Wal-Mart’s $260 billion in annual U.S. sales now comes from low-profit groceries.

Retail spending will continue to be affected by the unemployment rate and national and international news. New taxes and higher prices also impact the customer’s ability to spend. Government officials at all levels would be well advised to consider these impacts as a part of their responsibility to strengthen this difficult economy.