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Industry Suppliers See Retail Sales Outpacing GDP Growth

March 30, 2016

Women’s Wear Daily

By: Arthur Zaczkiewicz

Spring merchandise is strong, and suppliers are reporting higher reorders.

Amid an uptick in consumer confidence this month and a drop in weekly retail sales, Capital Business Credit’s Global Retail Manufacturers and Importers Survey revealed optimism from suppliers regarding the trajectory of the market.

Moreover, reorders for spring and summer goods are up, the report noted.

In the survey, released today, 75 percent of respondents “expect retail sales to significantly outpace the gross domestic product for the spring and summer shopping season.” Those polled expected retail sales to grow by 4 percent or more. This is above the 2 to 3 percent gain economists are expecting.

The poll also showed that 45.5 percent “believe that the spring/summer seasons will be stronger than last year” while nearly 39 percent “believe it will remain the same.”

Andrew Tananbaum, executive chairman of CBC, said while retail sales for January and February “were lower than initially anticipated, this hasn’t seemed to deter retail suppliers’ confidence or business activity.”

“In fact, nearly 90 percent of importers and suppliers are reporting reorders for the spring/summer shopping season,” Tananbaum said. “Retailers have become increasingly reticent to stock shelves if they do not believe products will sell or consumers will buy. These reorders mean that the major retail chains and individual stores are optimistic.”

CBC said 78 percent of respondents said orders from retailers has increased or stayed the same while 49.1 percent said orders have increased. “Of those that stated orders have increased, one-third indicated that orders increased between seven and ten percent, while 28.8 percent said that orders increased by more than 10 percent,” CBC said in its survey report.

CBC also asked respondents to weigh in on some the factors that keep them “up at night.” One third cited volatility in the equities market while 40 percent said it was China’s economic growth. The survey also revealed an expectation to increase production in China due to the devaluation of the Chinese yuan.

CBC added “half of respondents are considering increasing their Chinese production due to the strong dollar versus the yuan” while 37 percent said margins may increase due to lower costs to produce goods in that country. Still, over 56 percent don’t expect the devalued yuan to result in lower prices on consumer goods.

Regarding better margins, Tananbaum said in his opinion, “this is the first time since the recession that manufacturers, importers and other participants in the retail goods supply chain will have the opportunity to recover some of the margins they lost over the past decade.”

Suppliers’ optimism is well founded as sell-through of spring merchandise has been strong, according to analysts. But it has not been an easy ride. The Retail Economist-Goldman Sachs Weekly Chain Store Sales Index rose 3 percent last week, for example, over the prior week, but on a year-over-year basis “sales advanced by a still sluggish 1 percent,” said Michael Niemira, chief economist of The Retail Economist LLC.

“Weather continued to play havoc on retail-industry business through the nation and, in particular, for the retail industry’s spring merchandise demand.” Niemira noted. “For the week leading up to Easter, however, retail business was strong for discounters and traditional grocery stores despite the negative impact of adverse or cool weather in parts of the country, which hurt sales in other segments of the industry.”

From the consumer’s perspective, the warm spell was welcomed, and added to several economic factors that helped boost confidence.

IHS Global Insight economist Chris Christopher said consumer confidence’s comeback in March was buoyed by “low pump prices, lower household utility bills, modest consumer price inflation and relatively positive employment reports.”

“However, the stock market volatility in the first two months of the year was a major downer for consumer confidence and spending,” Christopher said adding that overall, the news was good.

“Stronger consumer confidence assists in spending on durable items, and to a lesser degree, clothing,” he added. “The bad news in this report is that the current situation index fell for the second month in a row and respondents’ feelings on their current job market prospects have become less optimistic since December.”

Christopher is expecting first quarter retail sales to show about a 2 percent gain.

http://wwd.com/retail-news/trends-analysis/suppliers-optimistic-retail-sales-10400160/