Shifting demographics create retail opportunities and challenges.

Changes in the size, age distribution, racial and ethnic profile, and geographic distribution of the U.S. population are impacting retail spending and the demand for retail space in markets throughout the nation, according to a recent report released by Newmark Knight Frank Retail.

Entitled "Shifting U.S. Demographics Create Retail Opportunities and Challenges," the report is authored by Peter D. Kozel, Ph.D., Newmark Knight Frank executive managing director, Research and Real Estate Strategies.

"Retailers in the U.S. are competing in a market place that continues to experience dramatic changes," Kozel states in the report. For example, large shifts in the number of people in the various age cohorts have occurred over the last ten years, and even more dramatic changes will take place over the next decade, "raising questions concerning where these people will live and what they will want as consumers."

"Moreover, the racial and ethnic profile of the country continues to evolve," said Kozel, "raising still more questions about the types of retail formats and products that will prove to be most successful."

Noting that long-term demand for retail space is determined by the level and growth of retail spending, as well as how and where those dollars are spent, the report documents several of the income and demographic parameters "that will shape the amount, type, and locations of prospective retail activity in the U.S."

Following the end of the 2001 recession, retail spending began a strong rebound that carried into 2006. "In fact, measured in terms of the volume of products purchased and consumed, the growth in retail spending during 2004 and 2005 showed some of the strongest gains experienced during the last 20 years," according to Kozel, although "The rate of growth did slow in the second half of 2006, as the combined impact of higher interest rates, rising oil prices, and the decline in home prices lowered consumer sentiment and purchasing power."

While there may be some moderation in retail spending's rate of growth in 2007, "There is little doubt among economic forecasters that total consumer spending will continue to expand," Kozel continues. He notes that personal income has been growing at about a six percent annual rate, while the increase in total wages and salaries is running at about the same rate. Low inflation, averaging just over two percent, accompanied by declines in oil prices and interest rates since their peak levels of mid-2006, is also contributing to this expansion.

"As long as some untoward external event does not occur, the economy is projected to continue growing through 2008," said Kozel, adding "Rising incomes mean that retail sales also will continue to grow; although perhaps not at the pace in 2004 and 2005."

With a current (as of October 2006) population of 300 million that is projected to grow another 35.8 million by the middle of 2020, the United States is one of the few major developed countries with a growing population, Kozel reports.

Not all age cohorts in the U.S. will reflect that growth, however.

"From 2000 to 2010, the percentage of the population in the 20-44 age group will decline from 36.9 percent to 33.8 percent of the total population," said Kozel. "That means that the actual number of people in that age cohort will remain constant over the ten-year period--which tells those selling products to that group that the total size of their market will not increase."

Meanwhile, the racial and ethnic profile of the nation's population is also changing.

By 2020, 17.8% of the nation's total population will be of Hispanic origin, up from 12.6% in 2000, reports Kozel, who notes that, "In numbers, this increase is even more dramatic, increasing from 35.6 million in 2000 to 59.8 million in 2020." Those of Asian origin, meanwhile, will grow from 3.8% of the total U.S. population in 2000 to 5.4% in 2020.

For the 20-25 year age group, 18.1% were Hispanic in 2000, and an estimated 17.9% in 2010. "By 2020, the percentage will rise to over 22% of the total number of people in that age category."

These demographic shifts have a number of implications for local retail markets, according to Kozel. Examples include:

The large in-migration of young adults into Atlanta in the 1970s, '80s and '90s means that a very large percentage increase in the older adult and senior populations will develop over the next 15 years.

The Dallas/Fort Worth market will also have a large percentage increase in the 50 to 65 age cohort during the next 15 years.

In Los Angeles, the Hispanic population will reach nearly 45% of the total population by late 2010.

"The U.S. represents a vast continental market with numerous national brands and retailers," said Kozel. "Nevertheless, important regional differences in consumption patterns exist and may become even greater in the future, with demographic shifts in individual markets creating both retailing opportunities and challenges."