2007: What’s in Store?

by Alexandra Biesada, January 30th, 2007, 7:00 am

The new year is ripe with shopping opportunities. But with retail sales expected to grow just under 5% this year (after a zippy 6% in 2006), competition for shoppers’ dollars will be keen. Which retailers will win in 2007, which the National Retail Federation predicts will see the smallest retail sales gain in five years? I’m betting that luxury and online retailers will continue to outperform their peers — just as they did in 2006.

Santa was generous, although selectively, to retailers this Christmas past. Winners included Tiffany, Neiman Marcus, and online diamond-seller Blue Nile. Shoppers snapped up enormous $2,000 LVMH handbags faster than you can say “call the chiropractor” and Tiffany had a jewel of a holiday. Luxury items and jewelry were also big sellers for online shopping sites, rising 21% over 2005, according to Internet industry tracker comScore Networks. Overall, online merchants, such as Amazon.com, Dell.com, and Wal-mart.com, saw double digit rises in traffic. Also, big electronics chains — Best Buy and Circuit City included — were swamped with shoppers in search of flat-panel televisions and new video game consoles.

Discounters and specialty stores like Wal-Mart and The Gap, which cater to lower and middle-income consumers, found less to cheer about. General merchandise and apparel sales were relatively weak. Heavy discounting — something shoppers have come to expect – is one reason. While gas prices are down, discount chains also may still be nursing a petroleum hangover.

America’s widening income gap is another possibility, but there are likely more prosaic forces at work.

For one, shopping (and parking!) at big-box stores is a drag. No wonder consumers are opting to shop online. Many stores also are falling short in their merchandising and presentation efforts. As veteran retailer Mickey Drexler put it recently “Our industry doesn’t inspire customers.” Drexler, with The Gap in its hey day and now CEO of J. Crew, chastized the apparel industry for its lack of creativity. A trip to any Old Navy or Sears store reveals that America’s love affair with the “pile it high, sell it cheap” retail model may be wearing thin.

I agree with Drexler that most consumers will gladly pay more for quality goods and a pleasant shopping experience. Now it’s up to retailers to figure out what we want. Until they do, expect luxury and online merchants to win in 2007.