Advice for Retailers

2011 Retail Forecast

Retailers turned a profit during the 2010 holiday season. Now the big question is what the retail forecast looks like for 2011.

Retailers have experienced a bumpy ride over the past several years.

The Great Recession has severely impacted the retail sector's bottom line and caused many retailers (large and small) to re-evaluate everything from inventory to growth strategies.

In general, the 2010 holiday shopping season was a boon for U.S. retailers. Although some brands reported negative trends and unmet expectations for same-store sales, the majority of retail businesses experienced an uptick in sales from the 2009 and previous years.

Going into the new year, the 2011 retail forecast is positive, but murky. At best, retailers can expect a sustained period of slow sales growth - a dramatic return to pre-recession sales numbers isn't a realistic expectation for 2011.

The primary basis for a slow growth 2011 forecast is the fact that retail sales are undeniably linked to other economic factors. If sustained economic growth materializes, the retail sector will reap the benefit. If not, 2011 could be another long year for U.S. retailers.

Unemployment

Everyone is concerned about the U.S. unemployment rate. But the unemployment rate is especially important for the U.S. retail sector. When people are unemployed, they can't afford to drop cash on unnecessary retail purchases - it's that simple. Economists expect to see job growth in 2011, but it will be slow. With early forecasts predicting a growth in employment of around 1.9%, retailers are still looking at a long slog in 2011.

Inflation

As the economy slowly regains its footing, there are indications that we might be heading into a period of inflation. Although it's better than deflation, inflation isn't necessarily good news for U.S. retailers. When the cost of living increases, so do expenses - including the cost of staffing stores and e-commerce centers. Experts expect that in 2011, inflation will run approximately 1% higher than it did in 2010.

Prices

Inflation will undoubtedly impact retail prices. But other factors including the rising cost of cotton, overseas labor, and shipping will also drive prices upward, forcing retailers to do business in an environment characterized by higher prices.

Value

Rising prices mean that retailers will need to place a greater emphasis on quality. It's generally accepted that consumers are willing to spend more for retail products based on quality and value. Buffering profit margins with low-quality goods may be a recipe for disaster in 2011.

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