Revisiting Our Retailing Forecast For 2009 And What To Expect For 2010

February 2010
News & Publications
Retail and Commercial Development 2010 Forecast

Our retailing forecast for 2009 projected a bleak year (with some exceptions). The gray forecast was mainly due to a combination of various negative forces collectively impacting the retail market, as well as various other markets. These factors included frozen capital markets, very negative consumer confidence, the fall-out from the housing market decline, the after effects of retail over-building, a dramatic rise in unemployment, a significant decline in the stock market and a myriad of other major, negative developments. Unfortunately, as we all now know, this generally bleak projection turned out to come true. In turn, this resulted in a very difficult year (and probably the most difficult in recent memory) for many in the retail industry.

Although 2009 was precedent-setting in terms of some of its lows, some aspects of our predictions ultimately turned out not to be as bad as we originally thought they might be. Based on then available International Council of Shopping Centers statistics and data, as well as various other industry commentaries, at the beginning of 2009 approximately 73,000 store closures were estimated to occur through the first half of 2009. Although 2009 experienced more store closings than anyone in the retail industry would have wanted, according to the February 5, 2010 issue of SCT Week, it appears that store closings for 2009 were less widespread than originally predicted. Some experts credit this feat due to progress on the financing front and new coping strategies adopted by both retailers and landlords. Retailers managed to adapt by offering deep discounts and tightly managing their inventories and operating expenses. Strategies such as these will only help strengthen retailers as they move forward into the future.

Although our 2009 forecast easily predicted that 2009 would be difficult, we also suggested that with new governmental plans to stimulate the economy, coupled with then recent improvements in the stock markets and other economic indicators that it was more than possible/probable that a slow and steady recovery would take root by showing a modest improvement in 2009 fourth quarter sales, leading to a more robust 2010.

We are happy to report that, based on various industry data, it appears that November to December 2009 retail sales increased by approximately 1.8% over 2008 sales for the same period, December 2009 comparable store sales increased by approximately 2.8% compared to the same month in 2008 and that overall, December holiday sales rose by 5.4% from 2008. Most analysts agree that these numbers were not phenomenal, but are significant in that they will lay a good foundation for a more robust retail industry in 2010. In fact, some analysts are anticipating that calendar year 2010 comparable-store sales will increase by 3-3½% and that there will be a 3.9% gain in 2010’s shopping center sales growth, following a 2.4% drop in 2009.

The positive ripple which started in the fourth quarter of 2009 (together with the positive projections for 2010) may be taking hold and gaining some steam. Early information suggests that January sales are slightly up and some retailers are reporting and planning for more positive growth. These retailers include Ann Taylor/Ann Taylor Loft, Tiffany, Starbucks, Panera Bread and others that do not necessarily fall into the categories one would expect to be performing better in this economy, such as deep discounters and supermarkets and drug stores. In addition, according to a recent post-holiday tenant survey by Levin Management Corp. (highlighted on recent GlobeStreet.com postings), although finding mixed results, many retailers are reporting increases in sales (or sales holding steady), suggesting a retail market that is beginning to stabilize. In addition, a significant percentage of retailers reported in the Levin survey that they are looking to expand locations in 2010. According to some, this suggests a consumer/retail market that is beginning to regain traction.

Although there appear to be some positive signs in the retail market, many caution not to be too optimistic. There are commentators that strongly believe that there will be soft retail demand due to continuing high unemployment levels and lingering challenges to consumer credit and ongoing housing problems throughout 2010. High unemployment will prevent wages from rising, which is good for company labor costs, but not good for consumer spending and growth. As a result, these commentators feel that a retail recovery in 2010 may be later in the year or beyond.

There is no doubt that the retail industry is still in the midst of a correction. There are still tough times ahead. However, the situation seems to be improving. The housing market will be a big factor in improving the retail industry, and general perceptions are that it appears to be improving. Compared to 2009, the stock market is up. Unemployment is slowing, but remains uncertain. It does appear that a retail recovery has commenced and many cautiously believe that a recovery is being sustained – the retail market has now seen a few consecutive months of relatively positive performance. This will bolster consumer confidence, and, as the overall U.S. economy slowly improves, overall sentiment will begin to lift, resulting in progressive increases in consumer spending. Most analysts caution though that consumers will not quickly increase spending, but will do so slowly and selectively. Accordingly, it is expected that any retail recovery in 2010 will start/continue with growth in discount retailers such as Target, Costco, WalMart and staple providers such as supermarkets and drug stores. Hopefully, as confidence takes root, this will lead to greater and more significant activity for other retailers as the overall improvements in the economy snowball throughout 2010.

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