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Industry Outlook 1999 -- DISTRIBUTION


As consumers start reacting to signs of an economic slackening, watch for retailers to feel their pain. The National Retail Federation, the industry's leading trade group, predicts that sales growth will slow--from a 5%-to-6% pace in 1998 to a 4%-to-5% rate this year. Merchants say they were already expecting the shift, having been tipped off by a slowdown during the second half of 1998. "We're not negative," says Marvin J. Girouard, CEO of Pier 1 Imports Inc. "But we're not stupid, either. We're practical enough to know this boom can't last forever."

Merchants and industry experts point to several economic trends that are making consumers tighten their purse strings. Swings in the stock market, for example, have proved dangerous to consumer confidence. Witness jeweler Tiffany & Co., which suffered uneven U.S. sales in the summer. Analysts say future market dips--and even future recoveries--will dampen spending. "The fact that the market went down and then went back up again only underscores how little control we as consumers have," says Wendy Liebmann, president of WSL Marketing in New York. "Nothing makes consumers more nervous than having no idea what's going to happen to all that money next."CAUTIOUS. Continued layoffs are also worrying retailers. Even if most Americans keep their jobs, news of firings at employers such as Boeing Co. and Merrill Lynch & Co. shakes people's confidence.

But several pockets of retailing will benefit from consumers' caution. Discounters, already leading the pack in 1998, are getting ready for another big year. Wal-Mart Stores Inc. is expected to show a 16% gain in sales, to $137 billion, for its fiscal year ending January. Wal-Mart CEO David D. Glass says the company should show same-store gains of "high single digits" in 1999. "Even with a little softening in the economy, we'll have a great year," he boasts.

Home-furnishings stores are also expected to benefit, thanks to the strong gain in housing sales over the past year. That gives many consumers empty rooms to fill.

Despite all the forecasts of coming gloom, many merchants say they'll believe it when they see it. After all, 1998's retail sales performance was hardly steady. Sales were healthy in spring, slipped during summer, bounced back again at Thanksgiving, and slipped some more when unusually balmy weather hit the East Coast in December. The roller coaster has retailers trashing the trend gurus. "Just before Thanksgiving, the headlines weren't positive. The media was making us all nervous," says David Feld, CEO of Today's Man Inc. "Then Thanksgiving weekend happened, and it was higher than expected. Maybe I should read less." Better to keep an eye on consumers instead.By Ellen Neuborne in New York, with Wendy Zellner and Stephanie Anderson Forest in DallasReturn to top


Positives and Negatives


-- Electronic commerce continues to grow. The Christmas boom in online shopping should carry over into 1999

-- Asian economic woes have had little ripple effect on American consumersNEGATIVES

-- Sales help is getting harder to hire and keep. Stores must pay more for staffers

-- Consumers continue to resist any price hikes, threatening retailers' profitabilityReturn to top

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