Lower auto sales this year

Sun Staff

After the most disappointing holiday retail season in a decade, few experts expect a quick rebound for retailers in 2001.

News has been grim so far, with store closings, layoffs and bankruptcies coming on the heels of a 2000 holiday season hurt by a slowing economy, high energy prices and bad weather. But the outlook should improve by the middle of the year, experts predict.

"I think in a general sense, it will be almost a flip-flop of last year. In 2000 it went gangbusters for six months, then tapered off," said Tom Saquella, president of the Maryland Retailers Association. For the first half of this year, "It's going to be very tough in Maryland to top the sales increases we had last year, and we may see sales decreases on a percentage basis."

William Ford, senior economic adviser for TeleCheck Services Inc., a check acceptance company and subsidiary of First Data Corp., also anticipates a slower economy and slower retail growth for three to six months.

But, "hopefully with the Fed acting promptly, it can help the economy from drifting downward into a recession," Ford said, referring to the Federal Reserve cutting the key overnight lending rate by half a percentage point early this month. "A combination of cutting interest rates and cutting taxes should help get the economy back on track."

Maryland retailers should get an added boost from the state's first tax-free week, scheduled for Aug. 10 through Aug. 16. Shoppers will pay no sales tax on clothing or footwear costing less than $100.

But for now, weak December sales have meant bad news. In December, sales rose on average just 0.7 percent above 1999 levels, according to the Bank of Tokyo-Mitsubishi, and most chains' sales fell far short of expectations.

The weakness, in part, caused Montgomery Ward to file for Chapter 11 bankruptcy. The 128-year- old retailer said it will close all 250 stores - including 13 in the Baltimore-Washington region - and lay off 28,000 workers in the next few months.

Bradlees Inc., a Northeast discount chain, also said in December it will liquidate this year. And Sears, Roebuck and Co., which saw sales dip 1.1 percent in December, said it will close 89 underperforming stores in the first quarter, including its department store at Owings Mills Town Center.

In 2000, sales at stores open at least a year rose 4 percent, according to the Bank of Tokyo index. A continuing slowdown in consumer demand will slow the pace of retail sales growth this year to 2 percent to 3 percent, Michael P. Niemira, a bank vice president, predicts.

"We're likely to see a lot of the same uneasiness throughout 2001," Niemira said. "I suspect the next year, the focus will shift to be less on the consumer and more to industry problems," leading to "some store closures and more shakeout in the industry itself."

Part of the problem has been that the United States simply has too many stores, Niemira said. Sales would have to grow at a 5 percent to 6 percent pace to keep all existing stores in business, he said.

Those who do the best job of merchandising and operating most efficiently will have decent sales, said Eric Segal, president and chief operating officer of Kenzer Corp., a New York executive- search firm for the retailers.

"The companies like the Wal-Marts, Targets - these are the companies that will lead the way in mass merchandising," while Home Depot and Lowe's will continue to dominate in home improvement, he said. "The department stores that understand on a continuing basis what customers are looking for will probably produce decent results."

But retailers will have to work harder this year, Kenzer said.

"There's a lot of opportunity out there. Those who manage the business smartly will be winners," Kenzer said. Retailers "will have to be very careful of inventory levels, careful of markdowns and watch operating expenses without sacrificing good customer service."

The retail real estate landscape in the Baltimore area will continue evolving mostly through redevelopment of aging shopping centers and malls as opposed to construction of new centers, experts said.

Last year saw the opening of what will likely be the last new regional mall in the Baltimore area, the 200-store, entertainment-oriented Arundel Mills near .

"Initially, it will take some business from those major shopping centers within a 10- or 15-mile radius, and that seems to be happening," Saquella said. "In the long run, starting this spring or summer, the mall will be a real plus because it will be more of a tourist attraction and is designed to bring shoppers in from afar."

This year, Hunt Valley Mall is being converted into Hunt Valley Centre, a hybrid, two-level "power center" with a mix of big box stores, specialty shops and restaurants. And an Annapolis developer with a contract to buy Golden Ring Mall in eastern Baltimore County expects to demolish the mall early this year, and build a "power center" with a discount department store, a warehouse club and a home improvement store.

Retail experts expect some store vacancies left by Wards and previously by Caldor and Hechinger to be filled this year. But it will likely take three to four years to absorb all the space. Vacant Wards stores could offer opportunities for retailers who want to either move to or expand in the area, experts said.

"It frees up a lot of sites," Saquella said. "In more developed areas, it's hard to assemble the sites. It's certainly freeing up sites that might tempt people who might be thinking about Maryland."

Mass discounters such as Wal-Mart Stores Inc. and Target, home improvement chain Lowe's and warehouse clubs such as Sam's Club, BJ's and Costco could be among candidates for former Wards or Caldor stores, said Thomas H. Maddux IV, president of KLNB Inc., a real estate brokerage. "While they all have lots of stores, they're not finished," Maddux said.

Some space might be subdivided or converted into nonretail uses, such as office space. Vacant Hechinger stores might be appropriate for expanding supermarkets, he said.

As real estate brokers, "We're either converting old, obsolete retail to other appropriate uses ... or we're meeting the needs of some of the stronger retailers," he said.

One of those on a roll is Jos. A. Bank Clothiers in Hampstead. The men's apparel chain plans to open more stores than it has ever opened in a single year -12 to 15 new stores by spring and another 18 to 20 in the fall, said Robert N. Wildrick, chief executive officer.

"We've identified almost 200 locations near or in existing markets where we can open in the next few years," Wildrick said.

The chain posted record sales results for December, with same-store sales up 12.6 percent.

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