Survey: Executives proceed with caution for the new year

With a stronger-than-expected holiday season under their belts, retail executives are looking to the new year with a little more caution, according to the results of the January NRF Retail Executive Opinion Survey.

The Retail Sector Performance Index (RSPI) for January posted a normal reading of 50.3, 1.6 points lower than the prior month and 14.8 points lower than the same period one year ago though nowhere near the 31.7 reading from 2003. The RSPI measures retail executives’ evaluations of monthly sales, customer traffic, the average transaction per customer, employment, inventories and a six-month-ahead sales outlook expectation. The RSPI is based on a scale of 0.0 – 100 with 50 equaling normal.

While the January pricing index showed a slight uptick from the previous month (25 points for January vs. 22.9 points for December), it was still well below the same period one year ago (41.7).

“Retailers are aware of the challenges they face in 2005,” said Tracy Mullin, president and CEO. “With consumers under increased financial pressure due to higher energy costs and slower wage growth, it will be more difficult to match comparable sales growth from the previous year.”

During the NRF Annual Convention & EXPO last month, NRF Chief Economist Rosalind Wells cautioned of a slowdown in the beginning of 2005, forecasting mild 3.5% growth in retail sales for the year, compared to the robust 6.7% gain in 2004.

The Current Demand Index, which includes sales, average transaction and customer traffic, decreased for a third straight month, posting a below average reading of 45.4. The January Current Demand Index was 1.8 points lower than the previous month and 22.7 points lower than a year ago.

The January Operations Index, which includes employment and inventories, posted an above-normal 52.8, down 3.5 points from December and up 0.7 points year-over-year.

Retailers are looking down the road with slightly more optimism than the prior month as the demand outlook (a six-month outlook for sales) posted an above normal reading of 52.8, 0.7 points higher than the previous month but still 22.2 points lower than last year.

“Retailers are in full clearance mode right now,” Mullin said. “This is the time of year where getting the inventory off the shelves becomes more important than making profits. Retailers are busy clearing space for spring merchandise.”