THE SHOP

January '19

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10 THE SHOP JANUARY 2019 Indeed, the labor shortage has contributed to a leveling-out of construction starts for new and existing home sales, and multi- family housing, through the first half of 2018. "The construction industry has been operating at full capacity and is still strug- gling to reduce its backlog of projects," says Koropeckyj. The coming 12 months should expe- rience a rebound as new multifamily building ebbs, releasing workers for the less labor-intensive single-family category. All of the above factors seem to be inspiring business owners in general to echo consumers' sense of optimism. Indeed, cor- porate profits are expected to rise by 3.7 percent in 2019, according to Moody's. "We expect corporate profits to benefit from the tax reform, mainly through the lower top tax rate and the new equipment accelerated expensing provision," says Koropeckyj. "Also, a positive for corpo- rate profits is the rollback of Dodd-Frank Act provisions, which had increased costs for businesses." The anticipated level of business profits actually represents a deceleration from the 6.9-percent increase expected when 2018 numbers are tallied, a moderation largely due to an anticipated rise in labor costs and higher interest rates. CLOUDS LOOM Troubles could loom on the horizon. "The number one issue for retailers is the possibility of a trade war," says Hoyt. "That would be a lose-lose situation, adding cost to imported merchandise and undermining job growth to some degree, therefore reducing spendable household income." (However, Moody's is not building much of a trade war into its 2019 forecast). "The wild cards are tariffs," says Phibbs. "If they really take place, I think every retailer is worried. An average bike, for example, might go up $200 in price. Everyone is wait-and-see. It's the monkey wrench that everyone is trying to figure out how to deal with. It will affect margins and, ultimately, consumers will pay for it." (See Tariffs sidebar on page 16 for more.) Businesses in general share retailers' concern. "The major near-term concern for busi- nesses is the rise of protectionist trade poli- cies," says Koropeckyj. "Escalating trade tensions between the U.S. and China could dampen investment more than expected. Company profits may be squeezed by the The nation's shoppers are opening their wallets wider in response to a happier jobs picture, one that should only brighten in the months ahead. Deliver merchandise the way shoppers want it. That's the formula for healthy retailing in 2019. "Retailers have to use all chan- nels," says Bob Phibbs, a retail con- sultant based in Coxsackie, New York (retaildoc.com). Some shoppers want to shop the brick and mortar store, others want to buy online, and then pick up in the store or have the goods delivered. The old days of relying on discounts to spark sales are over. "Discounts worked in the sixties, but not in 2019," he says. "There will always be someone cheaper online. Price transparency today is pretty obvious." Creating multiple pathways to sales requires some investment in technical infrastructure. "The fact that the consumer has never had more choices makes it harder to decide where to put your money," says Phibbs. And that's not the only expense. "Retailers are still wrestling with the rise of free shipping and free return for online sales," he notes. "Often, people will buy more to qualify for free ship- ping, then return some of what they ordered. That eats into margins." Phibbs also emphasizes the need for—and costs of—finding sufficient quality employees for the sales floor. "It's hard to find employees. We have never seen this kind of a labor market before." Some retailers are offering things such as cash incentives and vacations, even for part-time employees. "Others are trying to get the teacher who gets off work at 3 p.m. for eve- ning work, or the mom whose kids get home at 3 p.m. for day work. The challenge is 'how do you get them trained well enough so they are not just bodies?' One solution is online training programs, which people can take at home." That boils down to the number one tip: "Train your employees so mer- chandise goes out at full price, and people find value coming to your store. That's the recipe for success in 2019." —Phillip M. Perry Riding the Economic Boom Retail Success Map for 2019

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