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Industry Outlook -- SERVICES


The economy remains strong, and the stock market hasn't crashed-making the world safe for happy, confident consumers in 1998. But don't expect the same increases in retail sales that we've seen in recent years. Why? Increasing competition for the discretionary dollar.

Plentiful jobs are no longer enough to send consumers to the mall. "Years ago, when you had an extra dollar in your pocket, you went out and bought something. A thing. That was the way we spent," says John Konarski, vice-president for the International Council of Shopping Centers. Now, travel and entertainment compete for that extra dollar. As the stock market has boomed, financial services--from 401(k)s to investing in individual stocks--have become attractive spots to place extra income. Restaurants, which once sought only the customer's food dollar, now offer entertainment and merchandise, siphoning off cash that might have otherwise gone to a clothing or department store. All this has put pressure on traditional retailers to provide more than just merchandise to attract customers.

Retail sales will still grow an average of 2% a year over the next five years, according to a December report from the Commerce Dept. But that's far off the average annual gain of 4% recorded by the industry since 1992. Specialty apparel will see the most noticeable slowdown, resulting in bankruptcies and consolidation within that category, Commerce officials predict.

HIGH-END EASE. Within the $2 trillion retail universe, several categories will shine. Luxury goods are expected to remain strong--so long as the stock market cooperates. Tiffany & Co. plans to open new stores in Denver, Seattle, and Las Vegas in 1998. Dominico Del Sole, CEO of Gucci, says some markets, such as Hong Kong and Hawaii, will be affected by economic shocks in Asian markets but the U.S. market will hold strong. Burton Tansky, CEO of Neiman Marcus Group Inc., says isolated shocks, such as the Dow's October dive, have failed to shake the buying mood of the high-end consumer. "Our customers have a lot of money and want beautiful things," he says.

And low unemployment, paired with the minimum-wage hike, will continue to benefit the discount retailer. "It has put more money in the lower-end consumer's pocket, and that has been a boon to the discounters," says Tom Tashjian, managing director at Montgomery Securities. Discounters posted a nearly 10% sales gain in 1997, compared with 4% for department stores, he says.

But signs of the overall slowdown already appeared in the 1997 holiday season. November retail sales rose just 0.2%, prompting economists to scale back expectations for strong holiday shopping. Unless retailers can entice consumers back to the mall, look for an equally modest 1998.By Ellen Neuborne in New York, with Stephanie Anderson Forest in DallasReturn to top


Prognosis 1998


-- Continued low unemployment rates will keep consumer confidence high

-- Internet shopping will continue to expand

-- Sales of luxury goods will remain strong


-- Travel and restaurants are providing stiff competition for discretionary spending

-- Merchants see little opportunity to raise prices

-- Clothing sales are unlikely to pick upReturn to top

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