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Strong early sales slow with economy’s slowdown

Michael Pare

01/04/1999

With low unemployment and consumer confidence at an all-time high,
retail sales were off to a fast start in 1998. The first six months of
the year gave every indication that 1998 could be a banner year for
retail. But a slowing national economy put the brakes on any celebrating
among retailers and in the end, 1998 was being seen as an average year,
neither boom nor bust.
Robert Kahn, of Lafayette, California, a consultant for more than 40
years to medium and large retailers, including Wal-Mart, said a simple
formula spurred strong sales across the country early in 1998.
“Unemployment is at 4 percent and going down, and wages have increased
more than the cost of living,” said Kahn. “People are buying things.”
That momentum carried well into 1998.
Leonard Lardaro, an economist at the University of Rhode Island,
regularly issues a Current Conditions Index, which tracks the state’s
economy. Retail sales are among the major factors he uses to gauge the
strength of the economy. This spring, Lardaro said that retail sales
had returned to double-digit growth, rising at a 12.8 percent annual
rate. Retail sales, he said, were riding the wave of a strong economy,
said Lardaro.
At the time, Lardaro cited several factors for the level of consumer
confidence, including low interest rates and the fact that so many
Americans enjoyed significant tax returns.
“Those tax returns are not trivial,” he said.
But perhaps the most telling factor, said Lardaro, has been the steady
surge in home sales. When he saw record home sales in 1997, Lardaro knew
that it bode well for retail sales in 1998. “Whenever we set a record
for existing home sales – which we did in 1997 and may again in 1998 –
it always kicks up retail sales,” he said. “People need to furnish
these homes.”
And 1998 was a big year for what will soon be Rhode Island’s biggest
retail entity – Providence Place, the $450 million mega-mall. The giant
upscale mall being built in the capital city has begun to take shape.
The developers of the project are holding to the promise that the mall
will open August 20, 1999, featuring Nordstom, Filene’s and Lord &
Taylor as anchors, a 16-screen Hoyt’s Cinema complex and eight full-
service restaurants.
Providence Place’s competition, Warwick Mall and the Garden City
Shopping Center continued to report strong sales throughout the year.
The two popular shopping centers are banking on a loyal following as
they prepare to go head-to-head against Providence Place in a battle for
consumer dollars.
Rhode Island Mall in Warwick – which is expected to announce a new
anchor store early in 1999 to replace Filene’s — and Lincoln Mall have
vowed to cater to working class Rhode Islanders, an approach they are
convinced will allow them to survive even after Providence Place opens.

Working class Rhode Islanders are the target audience for the
Framingham-based TJX Companies, which continued to make inroads into the
Rhode Island retail market in 1998. The company opened a 25,000 square-
foot HomeGoods store in the Kingstown Plaza on heavily traveled Post
Road in North Kingstown.
“We don’t go into expensive mall sites,” said Debbie Weisberg, a
HomeGoods spokesperson. “We keep our overhead down and pass that along
to the customers. We look for heavy traffic areas.”
Though actual numbers had yet to be calculated, the 1998 holiday
shopping season appeared to offer little if any growth for retailers and
those expecting a big boost at the end of the year were likely to be
disappointed.
In fact, Lardaro’s final Current Conditions Index for 1998 suggests that
an economic slowdown has arrived.