In the 90’s everyone thought the stock market would only continue to climb.

Earlier in this decade, everyone thought you could never lose investing in real estate.

It is all cyclical. My guess is that the huge surge in the luxury market will subside as the boomers age and a smaller percentage of the population is in an affluent time of their lives and others reflect on their values and wonder if having the it handbag really makes you a better person.

I would surmise that the low end of retail will continue to thrive and department stores that have plodded along in the middle will continue to plod along in the middle as they have been despite many who have been anticipating their demise since I entered the industry in the early 80’s.

This is a massively complex topic. The number of factors involved here and their interrelationships is truly mind-boggling, which is why, I think, economic forecasting is carried out by large computer systems running extremely complex modeling algorithms. In my view, real insight on this topic would require great expertise in macroeconomics, and even economists at the level of Alan Greenspan, and Greenspan himself, don’t always predict accurately on these topics. In other words, I don’t feel I have even 1% of the knowledge I would need to offer anything but a nice-sounding guess. There is an interesting article in the May issue of Harper’s Monthly about the ripple effect of even a slow-bursting of the housing valuation bubble — I had no idea so many areas might be affected, and so seriously. And The New York Times this week ran an article on the historic changes taking place against the US Dollar in the currency markets because of our record, vast deficit. The effects on retail may be broader and more serious than even the… Read more »

Regardless of their positioning or category, if retail spending collapses, the happiest retailers will be the ones with the least debt and greatest profit margins. When sales go down, the least-leveraged businesses do best. The highest-leveraged can’t make their debt payments and go into Chapter 11. For example, Bed Bath & Beyond has low debt and decent profit margins, so they’d be more likely to survive the next recession. Because most retailers lease their locations and get credit from their suppliers, retailing is a highly leveraged industry. Frequent low net margins (1% to 3% after taxes and all expenses) make retailing even riskier. Some analysts add depreciation to the earnings, but worn-out retail stores are a customer turnoff. It doesn’t matter if the retailer sells to millionaires or to the poor: if the debt leverage is high and the margins after taxes are low, sales decreases are killers.

I see consumer spending continue to be strong for the foreseeable future. Over the last eight years there have been plenty of events for the consumer spending bubble to burst and the most we’ve seen is a small deflation. Consumer spending has carried the U.S. economy for some time and will continue. It doesn’t seem that high energy prices, the increase of minimum credit card payments, rising interest rates, or slowing home sales have slowed the consumer down one bit. Obviously, the only thing that will change this is if the credit itself dries up but that doesn’t look like it will happen anytime soon. I think that if consumer spending does decrease, I would agree with Mark that specialty stores in malls will suffer the most. If the consumer cuts back, they’ll immediately want more value for their dollar which will drive them to big box retailers, clubs, DYI, and off-market retailers. Mall based retailers will need to become even more value driven, putting incredible pressure on margins; something those retailers who are struggling… Read more »

Consumers are not going to quickly move to higher savings levels, so that should not be a major concern for retailers or suppliers. But faster shifts within broad categories are already requiring attention. Some examples follow: The two year growth of food sales in the grocery channel grew only 5.3% while “specialty” food products grew at 17.7%. Specialty Bread and Baked Goods jumped 147.8% in the same period, while specialty cold beverages advanced 65.7% and specialty waters grew 61.0%. Overall specialty food sales account for about 8% of total sales but specialty sales as a percentage of the entire category now exceed 25% in the following categories; Condiments, Cooking Oils, Coffee & Cocoa, Seasonings, Teas, Shelf Stable Pastas, and Sweeteners. * Underlining most of these changes is a shift from mass market brands that were dominate in their arena to the artisan, unique, quirkier brands introduced without neither the financial base nor marketplace clout enjoyed by major brands. Some retailers have recognized the trend and are revisiting standard practices to attract the very profitable consumers… Read more »

With governments and the media working in tandem (deliberately or not) to frighten us all with forecasts of doom and fewer young people (at least over here) actually able to get onto the proverbial property ladder, I can’t see any clear end to the live now, pay later philosophy. Figures on what people are spending on seem to confirm the middle and upper income brackets’ preference for the good things in life. I don’t find increased expenditure on speciality and/or organic food out of the ordinary at all. Nor do I found it strange that it is younger people (25-34) who mostly agree with the worry later premise. The only thing that surprises me is the difference in attitude in our two countries. Retail figures here lower than a year ago and don’t seem to be recovering. First there were hopes for a good Christmas, then for a good Easter. I don’t think either of them happened, from a sales point of view. Still, you guys have always been way more reckless than we have.

Personal spending will continue to decline as long as household expenses spiral out of control — rent, mortgages, healthcare, etc…

The amount of credit card debt in this country is staggering and is not likely to abate any time soon — at least not to any great degree, because of the younger people constantly being courted by credit card companies.

If the bubble does burst then retailers with the best price/value strategy will flourish. My money would be on a new generation of dollar stores with increased offerings and some higher quality products and deep discounters.

Much of the consumer spending over the past several years has been driven by the increase in home equity. If home prices begin to falter, we will see a slow down in consumer spending. Should this occur, we could see the impact being felt the most in the typical mall-based retailers. Retail formats that would be more resistant would be big box, club and DIY.