CIT's Third Annual Retail Outlook 2001 Predicts Rebound in Consumer Spending; Despite Continued Economic Slowdown, Recovery Expected in Second Half of 2001.

Business Editors

NEW YORK--(BUSINESS WIRE)--March 6, 2001

Retail sales will see a rebound in the second half of the year despite the continued economic slowdown, according to CIT's Third Annual Retail Outlook released today.

Nominal retail sales (excluding autos) should see average increases of above 5.0 percent over the next two years, down from an 8.0 percent range achieved in recent years, according to CIT (NYSE:CIT; TSE:CIT.U), a leading global source of financing and leasing capital.

"The latest consumer confidence figures, a drop to its lowest level in more than four and a half years, support our latest forecast for the retail industry," said Lawrence A. Marsiello, CEO of Commercial Finance, an operating group of CIT. "We believe that any intervention on the part of the Federal Reserve, which has clearly indicated its will to combat the economic slowdown, will revive consumer confidence and contribute to a retailing rebound in the second half of 2001," added Marsiello.

Last year proved to be quite challenging for the retail industry. Household wealth dropped nearly $2 trillion from March through December of 2000, leaving a notable dent in the wealth effect, which had allowed consumers to forego savings, freely accumulate debt, and increase consumption. The sudden plunge in the University of Michigan Consumer Confidence Index from 108 in November to 98 in December certainly reflects the unfortunate peak in consumer pessimism, according to the Outlook.

Holiday sales in 2000 were a solid 4.5 percent above the 1999 season, and for the year, the giant industry did manage robust gains reaching a record $2.43 trillion (excluding cars and auto parts) based on a U.S. Department of Commerce report. Estimated nominal sales rose nearly 8.1 percent, just as strong as 1999's 8.2 percent increase, with non-durable sales growing 8.9 percent and durables up 5.7 percent in 2000. Excluding gas service stations (to adjust for the unusual rise in petroleum prices) estimated total sales were up 7.1 percent and non-durables showed a 7.7 percent annual increase in 2000.

Going forward, according to the Outlook, the retail industry should expect to see sedate activity over the next several months, before experiencing a rebound propelled by lower interest rates and further clarity on pending tax cuts. The increase in sales in the post-Christmas period was attributed mostly to deep post-Christmas discounts and the reported large number of gift certificates purchased during the holiday season, reducing unwanted inventory.

"If passed, President Bush's proposed $1.6 trillion tax cut could give consumer spending an additional boost," said Marsiello. "However, funds from lower taxes will not be available before mid-year and actual tax cuts will most likely be scaled back given a split Congress and voiced opposition from Democrats. Nonetheless, any tax relief will bring more disposable income and significantly increase consumer spending," added Marsiello.

Fierce competition and lack of pricing power have been damaging to a few of the nation's large department stores, although some have certainly fared better than others. Luxury department stores have been largely insulated due to loyalty from upper-scale consumers who are attracted to brand and private labels as well as their high value appeal.

The Online Store

According to the Gartner Group, nearly 25 million people purchased holiday gifts over the Internet in 2000, spending nearly $12.4 billion in November and December according to the National Retail Federation. Based on the Census Bureau's e-commerce survey, online estimated retail sales in the fourth quarter of 2000 were nearly 23 percent above 1999's last quarter sales. Categories such as books, music, toys, and PC products continue to see the most significant increases.

"The exact formula for success in the online world has so far been elusive

for many merchants," said Marsiello. "Brand recognition appears to be important and customers feel comfortable buying online from an establishment that also has a physical presence. In the coming years we think that the Internet will serve as a complimentary distribution channel for well established retailers rather than a competing shopping venue," added Marsiello.

About CIT

CIT is a leading, global source of financing and leasing capital for companies in more than 30 industries. Managing more than $50 billion in assets across a diversified portfolio, CIT is the trusted financial engine empowering many of today's industry leaders and emerging businesses, offering vendor, equipment, commercial, factoring, consumer and structured financing capabilities. Founded in 1908, CIT operates extensively in the United States and Canada with strategic locations in Europe, Latin and South America, and the Pacific Rim. For more information on CIT, visit the Web site at www.cit.com.