Retail

4Vo to 5Vo growth next year, reaching a total of $125 billion. We expect growth in both consumer and professional categories, with consumer sales representing 213 of the total and product sales to professional customers the other 1/3.

While the overall market will grow, increases will not be even throughout the country. 1994 will be a regional versus a national housing market with some states showing strong growth. Texas and Colorado will continue to recover because of pent-up demand after several years of depressed housing. The South" Northwest and California will probably remain slow and highly competitive due to the concentration of military and aviation indusries and job uncertainty in those areas.

Our optimism is centered on the fact that construction of new homes and apartnents hit a 3-ll2 year high in the fall. This is prinarily due to mortgage rates bing at their lowest level in the last generation. We are also seeing consistent nonthly increases in building permit applications, which suggests more construction activity in the months ahead. The National Association of Home Builden recently reported that over 60Vo of. its members expect sales increases over the next six months.

Not all retailers will increase or even maintain their existing market share in the yers to come. In addition to economic factors, store expansion by several national and regional home improvement retailers hes and will continue to outstrip the projected overall home improvement sales

B.O.J.l.n.g year ahead

EIONDERING the present_upturn

I is in a sense boring. Growth rates of 2Vo to 3Vo arc incredible stuff from the perspective of when close to zero was the norm, but insignificant in the context of other postwar business cycles.

Employrnent numbers have been crawling up from their slide and the Anerican job machine of the 1980s is a distant, politically incorrect memory. The direction, however, is up.

Beneath slow growth is a seething caldron of activity. Daily we are greeted with headlines of change - downsizing at IBM and Woolworth, closures of military bases and curtailnents at defense contractors. Less publicized ue expansions of Wd-Mart and Dell and rebouttding forunes for much of the U.S. auto industry. The potential of change in the comnunications industry is only hinted at when we consider the Bell Atlantic-TCl m€rger and linkup of ATTandMcCaw.

This may be Joseph Schumpeter's process of "creative desEuction" penonified. That is, it will generate employment and aaivity in areas not dreaned about.

The ongoing refmancing orgy continues for fimts and individuals, with some back the second or third time. This is helping to ease the debt overhang of the 1980s and boost housing affordability to levels not seen in decades.

Inflation, the scourge of the late 1960s and 1970s, has, at least temporarily, been brought down to levels someone who went into a coma in the Eisenhower or Kennedy administrations would be comfortable with upon awakening. (How many of us in the late 1970s would have believed an inflation rate below 37o and 30 year mortgages below 6%?) In a low inflation environrtent, born again cost cutt€rs are woking to boost productivity. Assuming this continues, it will help set the stage for stronger income cfowth.

- Moving into 1994, another year of low inflation and relatively slow growth seems in the cards. Fiscal policy has turned more restrictive with tax increases and slower increase. Retailers as well as contractor-oriented businesses will need to find ways to improve their efficiency to withstand the aggressive competition moving into markets across the united States. spending growth. This will danpen growth. Defense cuts are not over, but the four-year decline in interest rates will help support housing, business investment and some consumer durables spending. Low inventories will stimulate production and declines in interest rates overseas suggest 1994 will be better in Western Europe and Japan.

The number one key to future growth is the development of a strategic plan that focuses on local business conditions including employment levels, competition, areas of competency, and the needs of the community. Time will be the currency of the 1990s and successful retailers must better service the needs of their customer base. This suggests providing a high value equation including a combination of the shopping experience, trust and perceived product cosL Those rerrilers best able to meet these new customer demands will be the winners in the years ahead.

It will be more important than ever that retailers market their stores through effective signage, both ouside and inside the store, making crystal clear statements which communicate the store's position in the market to its customer base. In the end, bigger will not necessarily be better and the retailers who best service their customers' needs will experience higher than average growth and be "the competition" in their market.

Empty buildings are slowly filling. Wrenching changes in corporate America's defense section will allow resources to move to other uses. Transitions while difficult and painful are America's srength - the ability to reorient and change. The risk is policy makers will kill flexibility via regulatory fiat or bursts of protectionism.

For 1994 a pair of threes would not seem an unrer$onable forecast - neu 3Vo on both inflation and growth. The interest rate decline is probably history, as they will likely bounce around before short term rates slowly rise. Modest growth and inflation could be "Geritol" for expansion, allowing it to continue at least through mid-decade.

Excitement in 1994 may well be in the policy arena as efforts to change the medical system continue and tottering progress towards additional reductions in global trade barriers hopefully is invigorated.

3 R's: Remodeling

rebound, recovery

TFOTAL home improvement prod- I ucts sales are projected to increase 6.57o lo reach $145.1billion in 1997, reflecting the improved long-run outlook for interest rates, housing market activity and consumer spending.

Consumer market sales of home improvement products afe expected to grow by more than 8Vo in 1994, outpacing total retail sales growth. A rebound in lawn and garden equipment sales and continued strong growth of lumber and building

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