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Economic factors take some shine off the holiday for retailers

By Renée Sunde, President/CEO

We’ve all heard the good news about retail projections for a strong holiday season. Crowds were plentiful and in a buying mood starting on Thanksgiving and lasting through Cyber Monday.

Yet, as The Wall Street Journal reminds us, there are other economic factors that may very well tame retail stock prices throughout the holiday season and into next year.

Rising inventories, trade tariffs and higher labor costs have left investors worried that retailers may have to slash prices next year to clear out warehouses full of inventory. Retailers who import goods from overseas rushed to buy extra inventory to avoid an expected 25 percent increase in U.S. tariffs in January.

While retail revenues are sure to be up by the end of the year, costs also are rising. Retailers who have raised their minimum wages either because of new requirements or to remain competitive are absorbing higher labor costs.

The result could be that merchandise will cost more due to tariffs while inventories will be fuller than normal. That’s a combination of factors likely to make some retailers cautious in 2019.

Stock market analysts still expect retailers to do very well this Christmas due to lower taxes, low unemployment and high consumer confidence. General merchandise retailers will pick up sales from the closure of Toys ‘R’ Us. The Sears bankruptcy also is likely to boost business at home improvement stores such as Home Depot and Lowe’s.

But the smartest retail strategy for 2019 is already starting to become clear. Winning retailers will be those able to hold down prices, manage labor costs and keep pace with the strong growth of online retailers.

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