CIT's Retail Industry Outlook Predicts Continued Growth for the Industry; Economy, Demographics and E-commerce are Key Factors.

Business Editors

NEW YORK--(BUSINESS WIRE)--March 14, 2000

Fueled by high consumer confidence, continued spending and a healthy economy, the retail industry is expected to experience ongoing growth through 2001, according to CIT's annual Retail Outlook, released today.

1999 was another record year for the retail industry as consumers pushed sales (excluding automobile sales) to $2.24 trillion. With buying activity in full swing and very few disruptions on the horizon, the Outlook predicts retail sales to see further gains through 2001. The increases are expected to reach 5.5 percent for 2000 and 4.9 percent for 2001, while real consumer spending should rise an average of 3.8 percent annually during the same period.

Keys to Industry Success

The Outlook notes three key factors that will affect the future of the retail industry -- the economy, demographics and e-commerce, with the economy acting as the main force behind the strong industry performance. "The retail industry has reaped the full benefits of what is now the longest period of economic prosperity in the nation's history," said Malory Pikar, Assistant Vice President of Economic Research at CIT. "With unemployment at historical lows, personal income rising and mortgage refinancing still attractive, consumers have had plenty of reasons, as well as the means, to spend."

Retail to Forge Ahead

In 1999, the home design and decoration segment experienced the strongest gains with furniture, home furnishings and home equipment store sales rising 7.6 percent to $163.5 billion. Although the housing market is expected to slow down in 2000, the demand for home furnishings will continue to grow with real spending rising 6.8 percent and 5.7 percent in 2000 and 2001, respectively, due to the lag period between home buying and home decoration.

Over the next two years, the apparel industry is expected to record an increase in sales of about 5.2 percent. In 1999, consumer demand for apparel and footwear reached a new high, growing 7.1 percent to $306 million, with real spending growing more than 9.4 percent.

Market-leader Bed, Bath & Beyond saw sales grow more than 30 percent over the last year and has announced major expansion plans. Likewise, Linens & Things, Lowe's and Williams-Sonoma reported sales increases ranging from 23 to 29 percent. Other big winners included discount stores and wholesalers such as BJ's and Costco, and upscale operations like Neiman Marcus and Tiffany's, all of which reported double digit increases for November and December compared to 1998 figures.

Meanwhile, the department stores' share of apparel sales fell to 9.3 percent from over 10 percent in the last few years, while discount stores saw an increase in their market share. "It's ironic that sales at discount stores are rising at a time when the nation is wealthier then ever and consumer spending is rising faster than disposable income," said John F. Daly, President of CIT Commercial Services. "This is mostly due to the facts that consumers are becoming less label conscious and bargain hunting has become trendy. Discount retailers, however, do deserve some of the credit for their growing popularity as they have improved their store decor and clothing assortment. With good quality designer 'knock-offs,' stores such as Kmart, Sears Roebuck and Target are rapidly winning over consumers who want to be in style but not pay designer prices."

Eco-boomers

Demographic patterns are also playing out to the industry's benefit. As the baby boomers are nearing retirement age and shifting their spending toward healthcare and retirement spending, the eco-boomers -- born between 1977 and 1994 -- are entering the scene. This group of 72 million young consumers is almost as large as the baby boomers, and perhaps even more eager to spend. In 1998, this population segment spent an estimated $141 billion on retail goods. They are the reason that retailers such as Gap, Abercrombie and Fitch and American Eagle Outfitters have performed so well in recent years and will continue to see profits.

The Virtual Revolution

The third key factor affecting the future of the retail industry is e-commerce. "E-tailing is probably the most dynamic and exciting trend to embrace the retail industry in the 1990's, as well as the fastest growing shopping venue during the last two years," said Daly. "Online sales are estimated to have grown from $8 to $14 billion in 1998 to anywhere between $23 and $36 billion in 1999. Holiday sales are estimated to have reached $10-$11 billion in 1999, an increase of over 150 percent from last year. The factors contributing to this phenomenal growth include a greater percentage of Americans who own a computer and have Internet access, more online shopping destinations, greater convenience, and a little bit of pure hype."

According to the Outlook, recent figures indicate that 45 percent of U.S. households own a PC and 25 percent are online. And for those not connected at home, Internet access is available through their place of work, universities, schools, even cyber cafes.

Another factor boosting online sales is the growing number of e-tailers offering a variety of products and innovative approaches. Some sites like Landsend.com even have a "virtual model" that can be built using customer's measurements and that will "try-on" any clothing sold on the site. Brick-and-mortar stores are only now beginning to respond by adding coffee shops (and not just in book stores) and offering entertainment for children, in an attempt to provide its customers with added convenience and a comfortable shopping experience.

Many customers, however, are still reluctant to make purchases online, mostly due to fears of credit card theft, inability to examine the product prior to purchase, and concerns regarding returning items. Consequently, big-ticket items such as furniture have been slower to catch on. In these cases, the Internet is used as an information gatherer. Other cyber-shopping problems include computer glitches and slow processing of orders. Furthermore, one of the greatest advantages to shopping online -- tax free sales -- is likely to change as it is under serious pressure from the federal government.

CIT Commercial Finance provides financing to companies in all stages of the business cycle through two strategic divisions, Business Credit and Commercial Services. Business Credit is one of the leading providers of secured lines of credit, primarily used in refinancing, acquisitions, debtor-in-possession, confirmation and turnaround financings. Commercial Services is the nation's largest provider of customized credit protection accounts receivable and lending services.

CIT Commercial Finance is one of six operating units of The CIT Group, Inc. (NYSE:CIT; TSE: CGN.U). Founded in 1908 and with over $50 billion in total managed assets, CIT is one of the nation's largest commercial and consumer finance organizations. For more information, visit the company's Web site at www.cit.com.

For more information or a copy of the Retail Outlook, contact: Lara Press: [phone] or [e-mail]