Retailers Brace For Uncertain Season | Things may be looking up, but wallets may not be coming out
Photo/Matthew L. Brown
OUTLOOK UNCERTAIN: Jeff Shack at his store, Shack's Clothes, in Worcester. He says it's always been hard to predict what holiday sales will be like.
Consumer spending makes up a huge majority of the United States’ economic activity, and interest rates in a continuing decline have economists anticipating a rapid uptick in spending and even a “memorable” holiday season, as Apple predicted recently.
Retailers have been reporting strong monthly sales since summer, and September’s results were especially impressive industry-wide.
But Bob Sheehan, president of KeyPoint Partners, a Lexington-based retail real estate and research firm, warned that today’s results look impressive because they’re being compared to last year’s dismal showing.
“Last year, the industry was spiraling downward, we couldn’t have done worse, and that led to a turnaround in October and through the end of 2009,” Sheehan said. Sales results from October through the end of this year will be the real measure for the sector’s resurgence, he said.
Folks in Central Massachusetts aren’t necessarily optimistic.
Banker’s Perspective
Martin Connors, president and CEO of Rollstone Bank & Trust in Fitchburg, said, “There’s a lot of empty storefronts,” which isn’t a good thing. However, “That means less competition for those that are still there.”
Nevertheless, the Central Massachusetts economy is probably right where it was a year ago, Connors figured. “People who are working will probably spend money and those that aren’t will have to find something else to do for their loved ones.”
With the unemployment rate slowly descending, it stands to reason that consumers will have a bit more to spend than they did a year ago.
It seems like national retailers, or at least retail real estate developers, are counting on it.
According to real estate industry tracker CoStar Group, the country gained about 23 million square feet of retail space.
It’s something, but still far from a boom. In 2006, 149 million square feet of retail space hit the market. Through September of this year, about 700 shopping centers broke ground compared with more than 7,000 four years ago.
Despite their enthusiasm, retailers understand that the climate remains unsettled. Consumers have been cautious all year, and there’s no especially accurate way to determine whether they’re actually looking forward to the holidays other than the steady increases in consumer spending in the months leading up to the holiday season.
So retailers are hedging their bets. Sheehan said the number of “pop-up stores” is on the rise.
The pop-up is a function of high retail vacancy, Sheehan explained.
A national chain like Toys-R-Us or Borders can lease vacant space on a month-to-month basis as a cheap way to take advantage of the holiday season. Toys-R-Us tested between 80 and 90 pop-up stores last year and will open 600 this year, Sheehan said.
In a way, larger retailers are demonstrating what many smaller retailers already know: It’s difficult to predict how the holiday season will go.
“Even 10 years ago it was hard to predict Christmas,” said Kent Bourgault, manager at Shack’s Clothes in Fitchburg. “I expect people to be out shopping.”
Jeff Shack, the 60-year-old store’s namesake, said his prediction on what consumers will be doing this holiday season would be the same as it has been for the last handful of recession years: “As long as people don’t have jobs, this is how it’s going to be.”
Bourgault said that as a small, independent business, Shack’s is able to remain flexible in the face of unpredictable customer spending.
“We’re able to adjust quicker. We’re not planning out a year ahead of time,” he said. And that has helped as customers have adjusted their spending habits.
“They’re buying things on more of an as-needed basis rather than there’s a new color in this sweater we had last year,” Bourgault said.
Framingham-based retail giant The TJX Cos. Inc. has adopted a similar strategy that has carried the company through the recession on a wave of sales increases.
Even in October, which Sheehan of KeyPoint Partners pegged as the test for the season’s prospects, TJX posted sales of $1.8 billion, a 5-percent increase over October 2009, although same-store sales were flat. For the 39 weeks ended in October, TJX posted sales of $15.6 billion, a 9-percent increase.
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