Retail forecast: Will you sink or swim in'97?

By Gary Wrigbt President G.A. Wright, Inc. Denver. Co.

1996 will prove to be the best year lfor retailers for the rest of this decade. Beginning in 1997, a number of converging trends suggest one of the worst retail market environments in the last 50 years.

These trends include an aging population of people with a declining demand for consumer products. There is a significant decline in the number of young adults who normally contribute the most to the economy in terms of retail sales. The budget deficit and national debt will prevent the government from employing any meaningful fiscal measures to stimulate the economy and, on the contrary, the move by government to solve these problems will have a negative impact on growth. Also, the continued expansion of the retail industry, in light of the prospects of declining demand, will result in a much more competitive market environment. These converging trends will cause a rash of retail failures.

The expansion activities of many retail chains is reminiscent of the froth of activity in the financial markets on the eve of a crash. They have the engine of growth turned on and they can't get it turned off. Ofcourse, their stock prices demand that growth continue unabated.

1996 signals a turning point in the fortunes of retailers for many years to come. A significant shift in buying patterns will occur because of the long-term growth in the population of old consumers and no growth in younger consumers. All of the opportunity for retail growth in the next 20 years will come from the aging market. And, the companies that will cater to this market are not the companies that grew so rapidly during the

'70s and '80s by selling to the growing mass market of young adults.

Home Centers

New houses purchased by baby boomers in the '70s and '80s are increasingly in need of repair, stimulating demand for a wide variety of products sold by home centers. However, the aging consumers who live in these homes are increasingly disinclined to do the work themselves. Consequently, the fastest growth in the home center business will come from companies that provide a high level of service. Retailers who not only sell the product but come out to install it will be the most successful.

Lumber & Building Material Yards

Because of the huge decline in young adults, the demand for new 'homes will decline proportionately, causing problems for lumber yards and companies that supply materials for new home construction.

The Big Boxes

Big box category-dominant stores have expanded rapidly at just the wrong time. It is a concept that fit the market environment of the '70s and '80s much better, when there was a fast growing population of young adults. But it is not a concept that matches well with the demographic trends of the next 20 years. It's not that the concept won't work; it is working and the aggressive expansion

Story at a Glance

Will '97 be the worst retail year in 50 years? ... survivors will stress service not size.

by this sector is resulting in sales gains. With an over-stored retail marketplace, intense price competition has retailers making every effort to drive costs down. The big box is the logical result of this attempt to gain market share. These stores provide convenience, selection and low prices.

However, this expansion is taking place in a market that will be increasingly less inclined to shop this type of store. These stores generally have poor service and are unable to tailor selections to local niches and buying habits. Because of their size, they must draw from a very large area, making the drive for many shoppers unacceptable. Although there are exceptions and some stores are overcoming the obstacles, maturity in this business will come rapidly and numerous failures can be expected.