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2019 U.S. Retail Growth Forecast Rosy; But Not Without Challenges

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This year’s batch of respondents to TLL’s Annual Licensing Business Survey agree with the experts: the U.S. economy is good for business in 2019. But uncertainty threatens to tank that rosy optimism.

Half of the respondents to the 2018-19 Annual Survey—just under 50%—say that their licensing business will improve in 2019, even though only 37% saw higher licensed retail sales in 2018. As usual, licensing executives are an optimistic bunch.

First up, the immediate challenges we must overcome in 2019: Tariffs on $200 billion in Chinese products are scheduled to rise from 10% to 25% on March 1, 2019, but real costs to consumers are not expected to rise immediately thanks to retailers stocking up and importing more goods in advance of the deadline, according to a report on December imports at major U.S. container ports from the National Retail Federation (NRF) and Hackett Associates.

The more pressing issues for the first quarter of 2019 stem from the government shutdown: Not only have government employees not been spending money, but an IRS backlog of tax returns (and unanswered questions posed by taxpayers confused by a newly revised code) will depress spending more broadly.

There’s more to bounce back from than previously expected. The latest preliminary figures from the U.S. Commerce Department show retail sales unexpectedly falling in December 2o18, the worst drop in nine years. Excluding automobiles and gasoline, December retail sales fell 1.3% from the previous month. They were up only 2.1% from December 2017. All in all, total retail sales for 2018 were up 4.9% from the previous year:

  • Furniture and home furnishings stores were up 3.5%;
  • Electronics and appliance stores were up 1.9%;
  • Building material and garden equipment stores were up 3.5%;
  • Food and beverage stores were up 3.4%;
  • Health and personal care stores were up 3.6%;
  • Clothing & clothing accessories stores were up 4.8%;
  • Sporting goods, hobby, musical instrument, and book stores were down -5.8%;
  • General merchandise stores were up 3.2%; and
  • Non-store (ecommerce) retailers were up 9.6% from the previous year.

Based on this news, the NRF revised its November-December holiday retail sales predictions, stating that they grew a lower-than-expected 2.9% over the same period in 2017 to $707.5 billion. The figures have hit some by surprise given that major retailers reported strong holiday sales:

  • Amazon reported fourth-quarter revenue was up 20% from a year earlier;
  • Macy’s sales for the November-December period grew 1.1%;
  • Kohl’s reported a 1.2% jump in sales;
  • Sales at J.C. Penney fell 5.4%;
  • Barnes & Noble saw a -6.4% decline in sales; and
  • Target saw its sales grow 5.7%.

Coresight Research estimates that so far this year there have been 2,187 U.S. store closing announcements. This year’s total is up 23% from the 1,776 announcements a year ago. Year-to-date, retailers have announced 1,411 store openings, offsetting 65% of store closures.

Looking forwards, the NRF previously stated that the “state of the economy is sound.” Its annual economic forecast projects that retail sales will grow between 3.8% and 4.4% to over $3.8 trillion in 2019. The NRF estimates that 2018 retail sales grew 4.6% from 2017 to $3.68 trillion, exceeding its previous forecast of at least 4.5% growth. Despite “artificial” threats from an ongoing trade war, the volatile stock market, and the effects of the government shutdown, the NRF notes that consumers are “in better shape than any time in the last few years” thanks to a strong job market, lower inflation and interest rates, and depressed gas prices.

Meanwhile, the Congressional Budget Office (CBO) estimates that U.S. real GDP growth reached 3.1% in 2018, with consumer spending up 2.7% in the same time period. The CBO predicts that real GDP growth will slow to 2.3% in 2019 (consumer spend up 2.9%) and then to 1.7% in 2020 (consumer spend down to 1.9%). Economists at the Federal Reserve also forecast 2.3% GDP growth for this year, down from 3.0% in 2018.

According to the 2019 BDO Retail Rationalized Survey, more than half (54%) of traditional retailers—including big box, department store, discount and specialty retailers—say they are just surviving. A majority of purely ecommerce businesses (84%) say they are thriving, while one in five department stores (9%) report struggling. But just about everyone is investing significantly in ecommerce. Some of the more interesting findings from the BDO survey:

  • 70% believe the cons of partnering with Amazon outweigh the pros.
  • Only 9% of retailers see exclusive products as Amazon’s biggest advantage over their business.
  • 38% cited consumer demand as the greatest driver of digital transformation.

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