22 | www.retailenvironments.org RETAIL ENVIRONMENTS september.2014
the levels seen at the peak of the real estate
market. As a result, rent growth has been
subdued, with great leasing deals available
across much of the country. In theory, this
should boost leasing activity and renovation work, but this has not materialized.
According to McGraw-Hill Construction,
commercial additions and renovations are
at their lowest level in over two-and-a-half
years and 3.9% below last year.
This may suggest that retailers and
developers prefer new space to existing,
thus explaining the combination of rising
construction numbers and a flat vacancy
rate. This trend may continue through the
short-term as retail absorption remains
muted. Expect commercial improvement
activity in the near-term to remain weak
and focused toward energy-efficiency
improvements as building owners look to
reduce heating and cooling costs.
Retail sales overview—
will consumer spending hold up?
Total Retail Sales (excluding automobiles)
are a record $2.2 trillion on an annual
basis. This is a deflated figure—it removes
the impact of higher prices from the spending figure. But consumers are beginning to
show signs of spending-fatigue in light of
the higher costs. On a year-over-year basis,
retail sales are 2.6% higher than one year
ago, but that pace of ascent has eased over
the last several months. During the most
recent three months, retail spending is just
2.1% higher than the same period one year
ago. This is a clear sign that trouble is afoot.
We expect retail sales to continue growing
over the next year, but they will do so at a
slower pace than the current. The improvements in the labor market and rising wages
will allow consumers to keep their heads
above water, and by late 2015, will allow
retail sales to re-accelerate.
Of course, retail sales is a broad economic
category. It can possibly be a disservice
to make broad-based statements on such
data. So let’s look briefly at some sectors
Spending at Electronic and Appliance
Stores has grown 1.4% over the past 12
months, and we anticipate further acceleration in the pace of activity. There are two
elements at play here. Rising home prices
have provided owners with more equity
in their homes, and this has provided a
boost to home improvement construction.
Home appliance sales have benefited from
this. Electronic sales have been supported
by our seemingly endless demand for
the “latest” gadgets. We do expect home
improvement spending to wane as the
economy slows, which will affect appliance
sales, but electronic sales should continue
to be healthy.
Retail sales at Office Supply Stores are
not doing well. Spending is at a 15-year
low, and contracting at a 5.2% annual clip.
While this decline should moderate as the
year progresses, there is little impetus for
expansion in this area. Larger chains feel
competitive pressure from retailers such as
Wal-Mart, Target, and warehouse stores.
The recent announcement of Staples and
Office Depot closing a combined 625 stores
by the end of 2016 is a sign of the rampant
overexpansion in this sector.
Clothing Store sales have plateaued near
an annualized $249.8 billion recently. We
expect sales in this sector to show some
additional rise throughout the year, but at a
slower rate than its current 2.2% year-over-year pace. This has traditionally been a fairly
fickle sector, with low brand loyalty, which
has made it hard for chains to expand their
sales volume without discounting. However,
recent industry trends toward leveraging
customer data into a strategic communications strategy have helped several larger
chains build customer loyalty.
Over the next 12 months, competition
will always be in pursuit. Innovation of
existing products and improved services
will be key to retaining customers and
increasing market share. Add top-notch
sales people to help you penetrate new
markets. Be prepared though for wages,
inflation, and healthcare costs to press
against cash flow.
is an economist at ITR
Economics. She provides
economic consulting services
for small businesses, trade associations, and
Fortune 500 companies across a spectrum of
industries. Her economic insight and forecast-
ing experience play a key role in the 94.7%
accuracy rating for I TR Economics.
Total Retail Sales (excluding
automobiles) are a record
$2.2 trillion on an annual basis.
On a year-over-year basis,
retail sales are 2.6% higher
than one year ago.
Retail Sales Annual Percent Change
0%1% –1% –3% –5% 3% 5% 7% 2% –2% 4% –4% 6% 8%
building materials & supplies
TOTAL RETAIL SALES
TOTAL RETAIL SALES (DEFLATED)
food service & drinking places
electronics & appliances
office supply stores
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