Retail sales will increase this year at a slower pace than expected as consumers cut back on spending because of the war in Iraq.
The National Retail Federation (NRF) said Tuesday sales will grow 3.8 percent — a drop from the 5.6 percent the District trade group estimated in January. It is the smallest percentage growth in at least a decade.
NRF officials say the war and the high price of crude oil are taking their toll on consumers, who are less willing to shop.
“Consumers have had to dig deeper into their pocketbooks to pay for home-heating bills and run their cars,” said Rosalind Wells, NRF’s chief economist. “As a result, disposable income has decreased and retail sales have suffered.”
The price of crude oil reached a two-year high of almost $40 a barrel before the war started. It has dropped since then, closing yesterday at $29.78 on the New York Mercantile Exchange.
Retailers such as Wal-Mart Stores Inc., Federated Department Stores Inc. and Best Buy Co. already are feeling the pinch from the war.
Federated, which owns Macy’s, said it expects sales at stores open at least a year to drop as much as 7 percent from a year earlier. Electronics retailer Best Buy cited the war when it posted a 3 percent drop in March “same-store sales.” Same-store sales are considered the best indicator of a retailer’s performance.
Wal-Mart, the world’s largest retailer, said March sales at stores open at least a year are rising at a low single-digit rate.
The average size of purchases was smaller and the number of shoppers visiting the discount chain declined last week, compared with the last week in March last year, according to Wal-Mart.
But March comparisons may be misleading because consumers shopped in March last year for gifts, candy and cards for Easter, which was March 31.
Easter falls later this year, so retailers say shopping wont start until closer to the April 20 date.
“Nobody has any idea about the length of the war, and weve seen there clearly is an impact on consumers desire to spend,” said David Ritt, an analyst at ASB Capital Management, whose $5.8 billion in assets includes about 1.8 million Wal-Mart shares. “Everybody’s keeping their fingers crossed for a fast resolution.”
A report issued yesterday by Instinet Research showed that sales last week fell 2.8 percent partly because consumers stayed home to watch news of the war with Iraq rather than going to stores. Instinet’s Redbook report also said sales dropped 1.5 percent in March compared with a year ago.
For now, retailers are focusing on price and promotions to entice consumers to spend.
“The problem is not traffic but spending,” said Ellen Tolley, an NRF spokeswoman. “Retailers know that some consumer actions are beyond their control so they are focusing on price and managing their inventories.”
Miss Tolley said consumers, while still browsing, are holding off on big purchases, waiting for the war to be over and a guarantee in job security.
Ms. Wells says that if the war is over, consumer spending should improve significantly by the second half of the year.
“Assuming a positive war outcome, consumer confidence should increase,” Ms.
Wells said. “Employment and income gains will increase. Oil prices will subside. The stock market will probably reflect better times ahead. And a return to more robust consumer spending should follow.”
The NRF usually re-examines its annual sales outlook each quarter, tweaking it according to events good and bad. The NRF is usually correct in its annual forecast of sales of general merchandise, apparel, home furnishings, electronics and sporting goods.
