Shoppers to Spend More, Stay Thrifty

Shoppers will continue to spend more this year, spurred by a slowly improving job market and an uptick in income, but enough shoppers are still struggling with their finances that any increase will be modest, a retail industry expert said.

Consumers returned to stores en masse in 2010 and gave retailers their best holiday season since before the recession.

But December sales at top retailers such as Macy's Inc and Kohl's Corp disappointed Wall Street as shoppers proved to be more sensitive to prices than expected and showed they were ready to take a break from shopping now that Christmas has passed.

"For those consumers that have jobs and are not underwater with their mortgages, there could be a slight uptick in spending," said Ira Kalish, director of global economic at consulting firm Deloitte.

The International Council of Shopping Centers expects same-store sales to be up between 3 percent and 3.5 percent in 2011.

"To the extent they spend, they will be very price sensitive and more apt to spend more on small things rather than big items," Kalish told Reuters on the margins of the National Retail Federation conference in New York this week.

Discount chains such as Target and dollar stores will continue to win shoppers so long as unemployment remains high, while home retailers, such as Home Depot, will struggle until the housing market rebounds, he said.

U.S. retailers' profits margins rose by 1 percentage point to 3.4 percent in the 2009 fiscal year, according to a Deloitte study released on Sunday. But just as their prospects seem to be improving, retailers face a major threat to their gross margins: the doubling in cotton prices in the past year that may force them to push up the pricetags on clothes even though shoppers are still very price conscious.

"They don't have much wiggle room," Kalish said of retailers who cater to modest income shoppers such as J.C. Penney Co Inc.

The National Retail Federation conference, which concludes today, featured chief executives of top retailers who discussed the prospects for retail spending in 2011 and how to contend with higher production costs.

(Source: Reuters, 01/09/11)