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Don't expect a retail rebound this year

Don't expect a retail rebound this year

Following a slower-than-expected holiday season that came in roughly 25 percent below forecasts, the National Retail Federation is projecting retail sales will continue to creep along in 2016.

The industry trade organization on Wednesday said it expects annual retail sales to rise 3.1 percent this year, which would be flat with its preliminary results of 3.1 percent recorded growth in 2015.

Though the 2016 forecast is flat with last year's growth figures, the NRF said a 3.1 percent increase (excluding automobiles, gas stations and restaurants) is above the 10-year average of 2.7 percent growth.

"Wage stagnation is easing, jobs are being created and consumer confidence remains steady, so despite the headwinds our economy faces from international developments — particularly in China — we think 2016 will be favorable for growth in the retail industry," NRF President and CEO Matthew Shay said.

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"All of the experts agree that the consumer is in the driver's seat and steering our economic recovery."

Jack Kleinhenz, the NRF's chief economist, said he expects the first half of 2016 will be weaker than the latter six months, thanks to limited first-quarter momentum and inventory levels that remain high.

As retailers continue to work through this excess product, which was largely left over due to the unseasonably warm end to 2015, Kleinhenz said he expects retailers will continue discounting their products to get consumers shopping.

Still, he predicts that as the year progresses, the labor market will continue to improve, payroll growth will pick up and gas prices will remain low — all of which should drive consumer confidence higher.

"The first quarter has been especially weak for the last three years," Kleinhenz said.

Indeed, NRF predicted last February that full-year sales would increase 4.1 percent compared to 2014. But in July, the group lowered its forecast to 3.5 percent growth, citing unexpected slowness in the first quarter.

It attributed the industry's underperformance to cold and snowy weather, a backlog of deliveries due to conflict at the West Coast ports and a stronger U.S. dollar. At that time, the group said sales had increased 2.9 percent during the first half.

According to NRF, during the critical months of November and December, sales rose 3 percent to $626.1 billion, falling short of its forecast for 3.7 percent growth during the period. The organization attributed the shortfall to unseasonably warm weather and deflationary prices.

Early holiday-quarter reports from individual retailers have been mixed. While Coach (NYSE: COH), Michael Kors (NYSE: KORS) and Under Armour (NYSE: UA) all reported better-than-expected results, Kohl's (NYSE: KSS) last week slashed its 2015 profit forecast. And last month, Macy's (NYSE: M) lowered its guidance for the second time in two months.

"The economy had a bumpy ride in 2015 with fits and starts along the way," Kleinhenz, said.

"Despite the volatility, the economy continued to reduce unemployment, raise wages and actually increase real GDP by 2.4 percent. Lower gas prices are creating more discretionary income to save, pay down debt, and spend on travel, eating out and personal services."



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