Retail industry expects to experience tough year

Filed under: Retail |

Consumers will spend less in 2006, thanks to a slower housing market and rising energy costs, according to a study from the National Retail Federation.

The nation’s largest retail trade association predicts that industry sales, excluding automobiles, gas stations and restaurants, will increase 4.7 percent from last year.

A stronger-than-expected 2005 saw retail sales increase 6.1 percent, slightly higher than the 5.6-percent gain NRF forecasted. However, because of a slowdown in the economy, NRF is predicting subdued retail sales growth in 2006.

“With the housing market beginning to slow, consumers will be challenged to find new sources of spending power,” NRF chief economist Rosalind Wells said. “The strong retail sales we saw in the second half of 2005 will be replaced by more conservative spending in the new year.”

NRF expects 2006 first-quarter retail sales to increase 5 percent, compared to gains of 6.5 percent during the fourth quarter of 2005.

The Federal Reserve will play a major role in the consumer’s ability to bounce back in 2006. As Ben Bernanke takes over from Alan Greenspan, NRF expects the Fed policy of vigilance toward inflation to continue. In the near term, underlying inflationary pressures appear to be under control. Productivity is still quite high, and, as a result, unit labor costs are low. These trends should give the Fed some peace of mind.

While NRF is cautious about the 2006 outlook, several categories of specialty retailing should continue to achieve solid sales growth. They include clothing and accessory stores, food and beverage retailers, and health and personal-care retailers. These categories are expected to see steady sales gains in the 4-percent to 5-percent range.

Some of the sales trends seen last year will continue into this year, but with somewhat smaller increases.

The highest growth last year was achieved by building material stores, warehouse clubs and electronic shopping. NRF expects building-related outlets to lose some momentum, as housing softens. The same is true of furniture stores.

Electronics retailers should be able to sustain strong demand for their merchandise, as product excitement and attractive pricing lures consumers. Sales gains at discount stores improved at the end of the year, as increases at luxury goods retailers eased.

Quiznos giving away 12 franchises

To celebrate its 25th anniversary this year, Quiznos is giving away 12 restaurants.

The Denver-based company plans to give away the stores in three ways: a sub recipe contest, in-store sweepstakes and a video competition, where competitors explain why they want to own a business.

“We’ve been fortunate enough to share our dream with franchise owners around the world. In this, our 25th year, we are excited about offering this opportunity to win a Quiznos restaurant to our loyal customers in unique and engaging ways,” said CEO Rick Schaden.

Quiznos started as a single restaurant in Denver’s Capitol Hill area in 1981. Currently, the chain has more than 4,400 locations worldwide, making it one of the fastest-growing restaurant chains.

Shaden bought into the chain as a franchise owner after graduating from the University of Colorado. He purchased two more franchises, and in 1991, he and his father, Dick Shaden, bought the franchise operation. At the time, Quiznos had 18 restaurants.

By 1996, Quiznos had opened 100 restaurants, and by 2000, that number had grown to 1,000. Entrepreneur magazine ranked the chain as the No. 2 franchise of 2005.

Shoppers respond to loyalty programs

Retailers will need to strike a balance between offering loyalty programs and collecting customer information, according to the inaugural “Retail Demand Insights 2006: What Drives Consumers?”, an annual NRF Foundation report, developed with Adjoined Consulting and sponsored by SAP, a leading provider of business software solutions.

The study offers insight into what retailers can do to meet untapped shopper desires and increase revenue and market share.

Now more than ever, retailers are challenged to create loyalty among their customers. According to the study, the number of shoppers stating that they were long-term customers dropped in 2006 to 77.2 percent, compared to 83.8 percent in 2005.

While consumers respond to loyalty programs, retailers need to tailor programs to protect their customers’ privacy. That’s because consumers said they are only willing to share a small portion of the personal information that retailers need to develop traditional loyalty programs.

According to the study, the most acceptable information shoppers were willing to give retailers included their name, e-mail address, street address and past transactions. Consumers were least likely to allow retailers to track weight, income, job title, employer and net worth.

“Retailers looking to create loyalty will need to walk a fine line between specializing their services to customers and invading their privacy,” said Kathy Mance, NRF Foundation vice president. “The more trust and goodwill a retailer builds, the more likely it is they will have a long-term loyal customer base.”

Amy Gillentine covers retail for the Colorado Springs Business Journal.