Strong Start for 2006
But economists say January’s skyrocketing sales may not impact rest of 2006
January’s retail sales delivered some of the best news apparel retailers heard in months. Clothing retailers’ same-store sales jumped 5.2 percent compared with the previous year, according to the International Council of Shopping Centers, a trade association for the mall industry. It was the apparel sector’s best performance since June 2005. But economists were wondering if the good fortune would last.
While apparel’s good business was shared by much of the retail industry, comparative sales for the retail sector grew 5.1 percent, according to Michael Niemira, the ICSC’s chief economist, who said the economy could slow down in 2006. “January will not be a bellwether for the year,” he said.
He forecast that the retail sector would enjoy modest growth in 2006 with same-store sales increasing 3 percent. He said reasons for the economy cooling might range from an increase in consumers’ debt to a decline in demand for American cars.
“Any cutback in demand [for cars] ultimately will ripple through the broader economy,” he said.
Analysts for financial services company Ernst & Young anticipated a 4.7 percent increase for 2006 retail sales compared with a 6.7 percent increase in 2005, according to their forecast released Feb. 2. Ernst & Young expected the economy to receive boosts due to spending for reconstruction in areas devastated by Hurricane Katrina. Reconstruction costs are estimated at $200 billion.
The National Retail Federation also forecast modest retail sales growth, projecting 2006 retail sales to grow 4.7 percent over 2005. In contrast, retail sales grew by 6.1 percent in 2005 over the previous year. The NRF blamed rising energy costs and a slowdown in the housing market for decreased consumer spending.
January’s good fortune was rooted in the holiday season. More than 40 percent of gift cards are redeemed in January, according to the ICSC.
The rising tide of January’s sales lifted many boats. Only one retailer tracked by the California Apparel News’ comparable-sales index reported negative same-store sales during the first month of the year. City of Industry, Calif.–based Hot Topic declined 0.7 percent in January. Retail analyst Jeffrey Van Sinderen said he believes Hot Topic’s luck will eventually change, yet the market would have to be patient for the retailer’s positive sales. —Andrew Asch
