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Outlook '08 Predictions: Consumers, Toy Safety, Box Stores

Holiday 2007 hasn't even happened yet but buyers and retailers are beginning to stock the shelves and clothing racks for 2008. With that in mind, I put together a list of some of the biggest questions that the retail industry is mulling over right now that will affect 2008.

1) How will consumers change their shopping habits in '08?
A great indicator of consumer health and consumer confidence will be whether shoppers start 'trading down' in ticket price and store level. That is to say, will Saks customers start shopping at Macy's and Macy's customers buy at Kohl's?

2) Will retailers' investments in 'green' store policies and products pay off?
Whether the motive is to save money in the long run (using solar energy, recycle waste, and other sustainability efforts) or to make money by selling eco-friendly products (from Barney's $400 organic T-shirts to Wal-Mart's energy conserving light bulbs), stores have embraced the eco-friendly trend. Can stores be profit-driven in a tighter consumer environment and STILL afford to be passionate about the planet? I'll be watching sales trends for answers.

3) Who will be buying retailers and brands this year?
The liquidity levels that greased megadeals like the Federated-May merger into the new Macy's have dried up. Smaller buyouts will be the new norm. That's also reflected in the slowdown of the once booming private equity activity in the retail space. The new money kings buying up retailers and brand names will be sovereign wealth funds. Get ready for Singapore, Norway, Dubai, Abu Dhabi and other the funds of other oil-rich countries to step up their brand name buying spree. The Barneys buyout was just the beginning.

4) After a year of safety concerns, what's ahead for toy makers?
Consumer polls tell us that shoppers are steering clear of the contaminated toy concerns by buying fewer toys. Target and Wal-Mart management both mentioned sales weakness in this category on recent conference calls. The question now is whether the toy industry can meet these manufacturing challenges head on, update their safety standards in overseas production facilities and convince shoppers that their kids are safe chewing on toys made in China. My prediction though is that if and when the contamination scandal blows over, consumers already are changing their buying habits. Tech toys are getting a bigger and bigger piece of the consumers' entertainment/toy budget. Shoppers don't seem worried about buying a Sony PlayStation or Wii made in China.

5) Will accessory sales boom as consumers avoid big purchases?
There's an old retail adage quoted constantly by a hedge fund manager that I know... "Auto sales and shirt sales have an inverse relationship." What's that mean? Consumers don't stop shopping when the economy slows done. They do change WHAT they buy. Consumers can't fork over cash for big ticket items like autos or refrigerators when they tighten their belts. Shoppers will spend on smaller accessory items like shirts, ties, lipsticks and costume jewelry as well as consumer product basics (food, socks, etc.) Why? Emotion and necessity beat out practicality. Look for an accessory boom in 2008.

6) How will big box stores continue to grow?
Small is big in 2008. From Wal-Mart to Tesco to Best Buy , the big box stores are launching smaller stores with less retail square footage. They're building these in big cities. In retail, growth is the name of the game. Entering new markets, showing adaptability and creating more accessible stores may be the way to jump start sales growth.

7) What's the future for store exclusive partnerships and product lines?
Stores are going to have to get more creative in order to convince consumers to part with their cash. Part of that edge involves retailers differentiating from each other. How? Expect more store exclusives. Macy's inked an exclusive arrangement with Tommy Hilfiger to be the only department store that sells TH gear. Macys is still negotiating similar contracts with other designers in order to make their stores destination shopping locations. Discounter Target will continue bring in limited edition designer lines like designer Holly Dunlap's low-cost version of her Hollywood collection.

8) How will the weather change how retailers do business?
Weather patterns will be scrutinized closely in 2008. After getting burned with a warmer than expected fall in 2007 and backlogged inventory, retailers are going to be tracking weather shifts and regional differences in the year ahead. This means stores will follow the Wal-Mart method of planning store placement of products based on seasonality. Stores will try to anticipate shoppers buying out of necessity and less by discretion. It also means that inventories will be tightly managed and seasonal product ordering (perhaps) a bit lighter. Managing inventories will be key if the consumer gets more conservative with spending in 2

Questions? Comments? retaildetail@cnbc.com

Retail

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