'Happy Holidays' Not Likely for US Retailers This Year - PricewaterhouseCoopers Economist Forecasts Slow Growth.

Business/Retail Editors

COLUMBUS, Ohio--(BUSINESS WIRE)--September 20, 2000

Although core retail sales - excluding the automotive and gasoline channels - are forecasted to increase during the fourth quarter this year vs. the fourth quarter of 1999, this holiday season will be a disappointment overall for US retailers both on-land and online. The retail sector is predicted to experience 4.5 percent growth in the fourth quarter of this year, down significantly from the 8.4 percent growth experienced in the fourth quarter of 1999, PricewaterhouseCoopers, the world's largest professional services organisation, reports.

"The retail industry will experience slowdown in spending this coming holiday season," comments Dr. Carl Steidtmann, Director and Chief Retail Economist for PricewaterhouseCoopers. "This slower pace of retail activity is due in large part to the growing impact of interest rate hikes by the Federal Reserve, a slow-down in home-building and refinancing, and higher fuel prices, among other factors," he continues. "Growth will be modest in most retail segments and significantly less than growth experienced in recent holiday seasons."

Where Will the Growth Be?

E-retailing will be the fastest growing channel this holiday season. Online sales are expected to exceed $10 billion during the fourth quarter of 2000, nearly double the level of a year ago.

"Holiday online sales will be driven by the large numbers of holiday shoppers drawn to Internet shopping for the first time and by a large number of traditional retailers doing business on the Internet for the first time," Steidtmann comments. He continues, "Sales will hinge on how well e-retailers prepare themselves for the onslaught following last year's failure by many sites to deliver in time for Christmas." Despite anticipated strong growth, e-retail sales will remain relatively small at about 1.2 percent of total retail sales in the fourth quarter.

Among the retail channels that will experience the slowest growth will be the apparel channels. Sales growth is expected to fall by as much as 1 percent at national chain department stores and will be flat at conventional department stores. The forecast is for sales growth of approximately 2.5 percent at apparel specialty stores.

The outlook is mixed in the homegoods channels. While sales growth will be weakest at building materials/hardware stores, which are expected to register sales growth of approximately 2.5 percent, sales growth is expected to moderate, but remain relatively healthy at furniture and home furnishings stores and consumer electronics and appliance stores. The furniture, home furnishings stores and consumer electronics and appliances channels are each expected to grow nearly 6.5 percent over 1999 sales results.

With the exception of supermarkets, sales growth is expected to downshift to a still healthy rate in the food, drug and discount department store channels. Sales growth at supermarkets is expected to slow to approximately 3 percent in the fourth quarter compared with sales a year ago that were inflated by Y2K-related purchases. Sales at restaurants are forecast to ease to about a 5.5 percent growth pace in the fourth quarter. Discount department stores are expected to grow at an 8.0 percent pace, down from double-digit growth experienced in the second quarter. Drug store sales are forecast to ease to a 7.5 percent growth pace.

What About Next Year?

"This moderating trend across all the channels is expected to bottom out in the first half of 2001," states Steidtmann. "Retail sales will once again experience growth in the second half of next year if the Federal Reserve abstains from further interest rate hikes and if energy prices can be persuaded to move back down," Steidtmann continues. "However, should gasoline and heating oil prices continue to climb into next year, the Federal Reserve will have little choice but to raise interest rates and the retail economy will face the real prospect of its first recession in nearly a decade."

PricewaterhouseCoopers (www.pwcglobal.com) is the world's largest professional services organisation. Drawing on the knowledge and skills of more than 150,000 people in 150 countries, we help our clients solve complex business problems and measurably enhance their ability to build value, manage risk and improve performance in an Internet-enabled world. PricewaterhouseCoopers refers to the member firms of the worldwide PricewaterhouseCoopers organisation.

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