Retail group forecasts sales growth of 3.8%-4.4% in 2018

Despite a department store bankruptcy and more store closings to start the year, sales for the retail industry are expected to grow between 3.8% and 4.4% in 2018 year over year, due to recent tax cuts and strong consumer confidence, according to a Feb. 8 forecast by the National Retail Federation, or NRF.

NRF President and CEO Matthew Shay said in a call with reporters on Feb. 8 that the Republican-passed tax cuts, which lowered the the corporate tax rate to 21% from 35%, will allow retailers to invest in their workforce on the heels of a strong holiday shopping season.

Online and other non-store sales are also expected to increase between 10% and 12% in 2018, according to the group. The estimate does not include automobile, gasoline station or restaurant sales.

"We think tax reform is already beginning to have an impact on retailers. We anticipate consumers will continue to boost the economy with additional income that will show up in their paychecks very soon,' Shay said, adding that retailers will build on the momentum of a strong holiday season.

The NRF said Jan. 12 that holiday sales in November 2017 and December 2017 increased by 5.5% year over year to $691.9 billion, topping the group's forecast of between $678.75 billion and $682 billion.

The optimistic 2018 forecast comes despite another bankruptcy and store closings to start 2018 for the retail industry.

Department store chain Bon-Ton Stores Inc. announced on Feb. 4 that it filed for voluntary Chapter 11 bankruptcy protection. In 2017, some 48 S&P Capital IQ-covered U.S. consumer discretionary retail companies and direct marketing retailers filed for bankruptcy, marking the most filings in six years.

Toys R Us, which filed for Chapter 11 bankruptcy protection in September 2017, began store-closing sales in early February, with the majority of 182 affected stores set to close in mid-April.

Still, Shay said that a 2.5%-3% projected annual growth rate for the broader economy, coupled with an anticipated increase in take-home pay and new capital investments related to corporate and individual tax cuts, could help the industry adjust to a gradual shift to online shopping that has impacted brick-and-mortar sales.

"We're finding retailers continue to be competitive in this environment by making investments and reallocation of capital from nonproductive investments to more productive investments," Shay said.

According to the NRF, retail sales, excluding autos, gas stations and restaurants, grew by 3.9% year over year to $3.53 trillion in 2017, citing U.S. Census Bureau data. That total in 2017 topped a 3.6% increase in sales in 2016.

"A confident consumer is a confident spender," NRF Chief Economist Jack Kleinhenz said on Feb. 8. "Spending is outpacing income and certainly increases in wages and the tax plan in place should help build on that."

Kleinhenz noted that retailers are going through a "strange year," pointing to fiscal and policy changes.

"Nonetheless ... we are in a healthy situation and the momentum will continue to carry us forward into 2018," he added.