No brick-and-mortar meltdown during holiday, panelists say at NRF convention

The surge in U.S. retail spending that drove a strong 2017 holiday peak shopping season is on track to continue through 2018, according to a panel of economists speaking today at the National Retail Federation (NRF)'s annual convention and expo.

Retail sales will likely be pushed by the surprisingly strong performance of traditional retailers and by the stimulus of corporate and personal tax cuts contained in the tax bill signed into law last month by President Trump, the economists said.

The conventional wisdom heading into the holiday was that brick-and-mortar retailers would buckle under the pressure of online commerce, notably from Seattle-based Amazon.com Inc. Holiday sales during November and December 2017 increased 5.5 percent over the same period in 2016, as consumers spent more than expected thanks to growing wages, stronger employment, and higher confidence, according to an NRF report released Friday. The rise was the largest increase since the 5.2 percent year-over-year gain seen during 2010 after the end of the Great Recession, NRF said.

The holiday sales figures will help to overturn predictions of a "retail apocalypse" frequently discussed over the past year by industry figures predicting massive store closures and inventory sell-offs, NRF Chief Economist Jack Kleinhenz said in the panel discussion.

"One of the biggest trends we've seen is the disintermediation of traditional retail by online commerce, specifically Amazon," said Brian Nagel, managing director and senior analyst for Oppenheimer & Co. Equity Research, who appeared on the same panel. "But this holiday season we saw traditional retailers hold their own. So maybe Amazon's not going to put everybody out of business right away."

Forecasters including NRF had initially been wary of holiday sales success after the market uncertainty caused by damage from a trio of hurricanes in the third quarter of 2017, he noted. However, that uncertainty was counteracted by positive market forces such as more disposable personal income, higher home values and stock prices, which resulted in stronger consumer confidence figures, Kleinhenz said.

"There were a lot of positive trends, and retailers took advantage of those with store promotions, increased staffing, and stocking enough inventory to meet rising demand," Kleinhenz said. Consumers spent more than expected in the fourth quarter on hurricane recovery efforts and an unusually cold and wintry start to the year.

That burst in consumer spending is expected to continue during 2018 thanks to the potential stimulus of the tax reform bill signed into law late last year, Nagel said. The provisions of the new law could support retail activity by providing a windfall of tax savings to corporations, although researchers are still trying to determine whether companies will spend the extra money on dividend payments, stock buybacks, or investment in operations and technology, Nagel said.

While the impact of the tax cuts will not be known for some time, investors are "sort of giddy" about an unexpectedly strong holiday performance by brick-and-mortar retailers in the face of skyrocketing e-commerce demand, Nagel said.