Shoppers who frustrated the nation's retailers by being choosy and waiting until the last minute for bargains during the winter holidays are expected to continue challenging merchants in 2006, particularly discounters and mid-level department stores.
High energy costs, modest wage increases and a slowdown in the housing market are expected to restrain consumer spending, forcing retailers to come up with new ways to excite the shopper.
Home furnishings stores, which had a mixed performance last year, will likely show more signs of weakness as shoppers may spend less on their home. And mid-price department stores will continue to struggle amid competition from stores like cheap chic Target Corp.
Hot pockets remain luxury stores and consumer electronics chains. Meanwhile, sales of accessories, particularly handbags, should continue to do well. Upscale retailer Coach Inc. reported that its female customers are buying nearly an average of four handbags — at more than $150 a piece — a year, compared to two a year in 2000.
But attracting shoppers goes far beyond just stocking up on the right merchandise.
"I walk through an American Girl store. And that's an experience," said Michael Gould, chairman and CEO of Bloomingdale's, in an address to industry executives at a seminar late Monday sponsored by investment banking firm Financo Inc. He was referring to the Mattel Inc.-owned popular doll brand, whose stores have tea rooms and throw theater performances.
"We need more animation in the stores," said Gould, noting that Federated Department Stores Inc.'s Bloomingdale's is studying ways to have more thematic fashion events. He's also looking at putting less on the floor. Bloomingdale's is renovating its lingerie department at its New York flagship, eliminating 40 percent of its lingerie offerings, while expanding its fitting rooms.
The good news is that shoppers — and the economy — showed surprising resilience last year amid a series of devastating hurricanes, a spike in gasoline prices and higher interest rates. Even the holiday shopping season, saved by the last-minute spending surge, ended up being respectable for merchants, though not spectacular.
But analysts predict a spending slowdown as shoppers see their disposable buying power reduced. This winter could be a challenging one for merchants as customers will be forced to budget more amid higher heating bills.
Another big concern is a cooling housing market; the windfall from home equity refinancing — which gave consumers extra cash to spend — is fading. Another big question mark is the employment market; the job market has steadily improved, but wages aren't keeping up with inflation.
The National Retail Federation, which is holding its annual convention this week, forecasts a 4.7 percent gain in total retail sales this year, less than the 6.1 percent growth achieved last year. Total retail figures exclude business from auto dealers, gas stations and restaurants.
Michael P. Niemira, chief economist at The International Council of Shopping Centers, expects a 3 percent sales gain for retailers' fiscal year, below the 3.8 percent increase in 2005. The International Council of Shopping Center-UBS sales tally is based on sales at stores opened at least a year, known as same-store sales.
Amid this climate, companies are recognizing the need to have an emotional connection with consumers.
Mindy Grossman, vice president of global apparel at Nike Inc., another panelist at the Financo session, cited the success of an activewear line called 10//2, inspired by cancer survivor and cyclist champion Lance Armstrong.
Meanwhile, rapper Sean "Diddy" Combs, chairman and CEO of fashion company Sean John, said he was able to resonate with his consumers with his first foray into fashion: a black T-shirt and a black cap. The company, which now sells a complete men's clothing collection, is doing well with its new men's fragrance called "Unforgivable" with Estee Lauder. The 2.5-ounce bottle, found only at Saks Inc.'s Saks Fifth Avenue, sells for $300. A less expensive version will be in 1,800 department stores starting on Feb. 15.
"We represent the attitude" of our consumers, Combs said.