1. Holiday 2010 modestly outpaces estimates.
Retail sales will exceed the range of estimates (flat to about 2 percent higher than the year-earlier period.) The modest gains stem from strong sales of hot electronics such as Apple’s iPad, Microsoft’sKinect, and inexpensive flat-screen TVs; and to a decision, particularly among higher-income consumers, to treat themselves a little better after two years of sacrificing.
Still, sales will not return to pre-recession spending patterns (although online spending gains will reach pre-recession levels). This is a brief blip of extra spending to satisfy some pent-up needs. Consumers will remain careful about their spending in 2011.
2. Teen retailer shakeout.
With teen unemployment high, retailers have been waging a war to win their share of the limited teen budget over the past year, and the battle scars are starting to show. The line between the winners and losers will become more pronounced by the end of 2011. The damage will be so severe that some companies will be forced to bow out or take drastic strategic steps.
3. Private equity shops the retail sector.
The retail sector always has been a great place for private equity to play. The companies are great generators of cash, which can be put to work on other investments. This year has already seen Bain acquire children’s clothing retailer Gymboree, and J. Crew has announced its plans to go private. Rumors have circulated around other retailers including warehouse-club store BJ’s Wholesale, La-Z-Boyand American Eagle. I suspect we will see several more private equity deals completed by year’s end.
4. Focus remains on expanding online and international business.
Go where the growth is. Online investment will focus on making retail businesses more channel agnostic, which is difficult to achieve, but will be more important because consumers expect to be able to find what they are looking for no matter how they interact with the retailer: at the store, online or via their smartphone.
The busiest scrambling will occur on the mobile side. Consumer interest remains far ahead of what most retailers can deliver.
5. Shhhh. This product has less…
Look for consumer packaged-goods companies to silently reduce the levels of salt, sugar and high-fructose, corn syrup in their products over time, instead of calling attention to these changes. The drumbeat against salt and high-fructose corn syrup will continue to grow as the year progresses.