CIT'S First Annual Retail Outlook Predicts Moderate Growth Into the Millennium.

NEW YORK--(BUSINESS WIRE)--Feb. 11, 1999--

Trends in Shifting Demographics, E-commerce, Superstores

and Brand Names Influence Retail Environment

Growth in the U.S. retail industry will continue with help from the generally healthy economy, strong consumer confidence and lack of significant inflation, says The CIT Group/Commercial Services in its 1999 Retail Industry Outlook, released today.

Of the different retail segments, apparel and home furnishings should continue to set the pace for the industry. Due to high consumer confidence and significant gains in disposable income, the apparel segment was expected to finish 1998 with 5.3 percent growth over 1997. Looking forward, consumer spending on apparel and footwear should increase 2.5 percent in 1999 and 3.9 percent in 2000.

The home segment should continue its period of growth over the next five years thanks to shifting demographics, with the high-earning 35-60 year-olds being the fastest growing age group in the U.S., and a rise in private housing starts, which have reached their highest levels in over a decade. According to the Outlook, 1998 growth in consumer demand for furniture will be up 7.5 percent over 1997 levels. Growth should continue at a pace of 4.0 percent through 2000.

"For the near term, growth is expected to continue at a moderated pace," said Malory Pikar, assistant vice president of economic research for The CIT Group, Inc. "Real retail sales are estimated to have recorded a gain of 4.7 percent in 1998, and we expect that growth will taper in 1999 to around 2.9 percent," she added. The forecast also notes that increases in personal consumer expenditures (excluding automobile and energy) were forecast at 5.9 percent for 1998 and are expected to reach 3.9 percent in 1999 and 4.0 percent in 2000.

Keys to Industry Success

"The retail industry is always trying to find balance between consumer confidence and commercial trends," said Lawrence A. Marsiello, president and chief executive officer of The CIT Group/Commercial Services. "Some emerging trends that should play a major role in the industry's future success include shifting demographics, electronic commerce, the superstore concept, and brand names."

The Outlook notes demographic shifts and e-commerce as two key trends that will shape the future of retailing. The U.S. population is shifting and aging. Since 1980, U.S. population growth has slowed to 1.0 percent from 1.7 percent between 1950 and 1980.

Additionally, 34 percent of the U.S. population are aged 45 or older, and that number will reach 41 percent by 2015. The baby boomer generation will also begin to hit retirement age by 2001.

These shifts mean big changes for the retail industry, as less money will be spent on personal goods and more will be spent on college tuition, retirement planning and elderly care. Retail spending in general, and apparel in particular, must vie with leisure activities and healthcare expenditures for consumer dollars. With the aging of the population, consumer preferences will shift from fashion to comfort and value. Consequently, the casual segment is expected to grow and the sales of athletic footwear and celebrity-endorsed apparel should see per capita sales decline. Spending in the home segment should continue to remain strong as aging consumers, who typically spend more time at home with their families, make fixing up the family home more of a priority.

"In retailing, demographics are as significant as income levels, consumer taste and the health of the economy in determining consumer trends," said Marsiello. "The U.S. population is shifting, and in order to be successful in the new millennium, retailers must monitor and adapt to these changing demographics."

Industry Trends

With seemingly unlimited amounts of virtual storefront space, some Internet retailers could have a claim as the world's largest store. While they don't have the hands-on environment of a superstore, retail websites have unlimited shelf space and can remain open twenty four hours a day, seven days a week. While the first e-commerce sites sold limited variety, today it is possible to buy almost anything over the Web, from fashion and furniture to groceries and even new cars. According to America Online, its best-selling items during 1998 were toys and apparel. As access to the Internet continues to grow, Internet retailing should increasingly gain a larger share of the retail market.

Another trend effecting the competitive landscape is the emergence of the superstore. With their spatial environment and spartan decor, these larger stores appeal to consumers who like the large selection and bargain values. "Many mall-based retailers are increasingly at a competitive disadvantage against 200,000 square foot stand-alone retail stores that offer a greater breadth of merchandise at discounted prices," said Marsiello. "Retailers like The Gap have launched warehouse stores like Old Navy, which enable them to expand into the stand-alone store concept and target lower income households by offering merchandise at lower price points."

For most retailers to remain competitive, it is imperative that they develop and build an image that consumers recognize and trust. Many have turned to brand names to differentiate themselves from competitors who offer the same merchandise. A retailer can often increase sales by offering a certain brand name or by developing its own unique private label.

"It is no secret that brands are the key force behind many purchases," said Marsiello. "To the quality-conscious consumer, buying a respected brand gives them confidence in the product. In an attempt to capitalize on this and differentiate themselves from their competitors, many retailers have created private label brands that they sell alongside national lifestyle brands," he added.

Trends in the Apparel Industry

Over the past few years, casual apparel sales have benefited greatly from the shift to casual dressing, especially in the purchase of khakis and polo shirts. In addition, there has been an increase in the number of affluent households, those earning over $60,000 annually. This group accounts for more than 40 percent of retail dollars spent on apparel. The good news for the apparel industry is that the number of households in this income bracket is projected to grow over the next several years.

Trends in Furniture and Home Furnishings

The rise in private housing starts, which were expected to have reached 1.59 million in 1998, coupled with the growing size of homes, should continue to drive the strong performance of furniture sales. With an expected annual growth rate of 6.5 percent over the next two years, one area that is particularly promising is the small office / home office segment. Over 43.5 million households currently have a home office, while 51.5 million individuals work from home at least part time. According to a recent American Express survey, one in four Americans earning $40,000 or more annually is planning to refurnish or add a home office this year.

In addition, as consumers are spending more time at home, there seems to be a growing trend toward formality in home decoration. Consumers, especially baby boomers, are buying greater quantities of color-coordinated and patterned home furnishings. In response, famous designer names are entering the home textile arena hoping to capitalize on consumers' recognition of and loyalty to brand names.

The CIT Group/Commercial Services, Inc. is one of the nation's leading providers of domestic and international credit protection and lending services. It is a business unit of The CIT Group, Inc. (NYSE: CIT), founded in 1908. With over $26 billion in managed assets, The CIT Group, (www.citgroup.com), is one of the nation's largest commercial and consumer finance organizations.