Holiday Shopping Rebound Dispels Doomsday Chatter for Retail in 2018 - Sachse Construction
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Holiday Shopping Rebound Dispels Doomsday Chatter for Retail in 2018

The retail industry is hoping that two months of some of the highest sales in five or six years will carry into 2018 and expunge the bitter aftertaste of record retail bankruptcies and nearly 7,700 store closures in 2017.

Retail employment heading into the Christmas shopping season grew 26%, the highest total since 2012, according to an analysis of Bureau of Labor Statistics data by outplacement firm Challenger, Gray & Christmas Inc.

And MasterCard reported that holiday sales increased 4.9% this year, setting a new record for dollars spent by shoppers, the largest year-over-year increase since 2011.

This was good news for traditional retailers looking to boost profits or get back in the black before the New Year.

Washington, D.C. also provided the industry another shot of optimism. The industry welcomed tax cuts signed into law, saying the measures will dramatically benefit businesses and consumers.

Though it was a winning holiday season for retail overall, the story was different category by category.

“Overall, this year was a big win for retail,” said Sarah Quinlan, senior vice president of market insights at MasterCard. “The strong U.S. economy was a contributing factor, but we also have to recognize that retailers who tried new strategies to engage holiday shoppers were the beneficiaries of this sales increase.”

Electronics and appliances increased 7.5%, the strongest growth of the last 10 years, according to MasterCard. The home furniture and furnishings category grew 5.1%, as did home improvement.

However, specialty apparel and department stores, two of the hardest hit sectors in 2017, saw only moderate gains. Fewer shoppers were visiting department and apparel stores during the holidays, favoring the convenience of purchasing products online instead. And that trend is not projected to go away -and will likely even grow stronger.

“The secular trends affecting retail — changing shopping habits, the rise of online and discount models — have been well documented and now the market is focused on how retailers manage those changes, and who wins and who loses,” said David Silverman, senior director of Fitch Ratings. “The gulf between the winners and the market share donors is poised to grow as competition heats up.”

According to Fitch, the retailers best positioned to maintain or grow their market share are those with sufficient scale, cash flow and financial flexibility to invest in its business, an effective operating strategy and a right-sized physical footprint for its category.

Given the heightened stakes in retail competition, Fitch Ratings believes the sector will remain under pressure over the next year. It has 17 retailers on its primary bonds and loans of concern lists. Eight of the 10 largest on those watch lists are either department or apparel stores with total debt outstanding of more than $9 billion.

Industry dynamics continue to sort players into winners and losers, with weaker physical stores falling victim to more innovative retailers both on- and off-line, research analysts at Colliers International noted in their 2018 outlooks.

And while Colliers is warning the industry to expect another wave of store closures and bankruptcies after the holidays and into 2018, it’s not a doomsday scenario for retail property investors, said Melissa Reagen, Americas’ research head for TH Real Estate.

“In our view, the average-to-low performing retail centers are seeing value declines, while there is no evidence of the same for high-performing malls and shopping centers,” Reagen said. “Defining characteristics of high-performing retail assets are a strong experiential component, continual adaptions that complement e-commerce, and strategic, forward-looking capital improvements that address shifts in consumer behavior and adapt to current technology.”

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