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Business Looks Good to Retailers and Wholesalers

Online Sales Impact

Is Still Minimal; Y2K Effect Likely to Be Minor

Business is good.

Overall, retailers and wholesalers have a good outlook on sales and the economy for the coming year and believe that E-commerce and Y2K will have a minor impact on their prospects.

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That’s the story, according to 20 retailers and wholesalers who responded to the 10th annual Deloitte & Touche/San Diego Business Journal Economic Outlook Survey.

The outlook for business growth in San Diego over the next three to five years is “good,” according to 65 percent of the respondents. Four companies believe the outlook is “fair,” while three think it will be “excellent.”

San Diego-based Charlotte Russe, a chain of Charlotte Russe and Rampage clothing stores for young women, is one of those companies that have a good outlook for 2000.

Dan Carter, chief financial officer for the chain, thinks mall-based retailers have a “healthy environment” nationally.

The company has 110 stores (nine in San Diego) throughout 16 states with plans to open about 30 more across the nation, he said.

Charlotte Russe, which went public in October, reported $177.7 million in sales for fiscal 1999, a 32.3 percent increase from last year, Carter said.

“I think we are uniquely positioned as a newly emerging national retailer. We see much of our growth from new store expansion and have plenty of room to grow. That may not be the case with other retailers,” he said. “We also have two unique and distinct concepts, Charlotte Russe and Rampage, (that give the company) an even broader market target than most other forms of retail.”

Target Markets

Charlotte Russe targets young women who follow established trends and look for “value priced merchandise.” Rampage targets more “independent” and “cutting edge” young women who look to set trends and are less price sensitive, Carter said.

He expects Charlotte Russe to increase sales in 2000 by 30 percent or more due to the company’s expansion plans and “modest comparable store sales increases.”

In agreement, Randy Smith, executive vice president of Westfield Corp. Inc., said that retailers should see an increase in sales just like last year.

The company manages Westfield America, which owns Horton Plaza, Mission Valley Center, Mission Valley West, North County Fair, Parkway Plaza, Plaza Bonita, Plaza Camino Real, and University Towne Centre in the county.

“1999 was a very successful year,” he said. In 1999, retailers experienced real sales growth of more than 3 percent and the Christmas season generated an increase in sales of about 6 percent. Smith estimates a 4 to 4.5 percent increase in sales for 2000.

Most survey respondents also believe that their company sales will increase in 2000.

Six companies expect a 1 percent to 5 percent increase in sales, while another six hope for an increase of more than 10 percent. Five respondents anticipate increases between 6 percent and 10 percent, and the rest expect a decrease or no change in sales.

Respondents also plan on hiring more employees. Thirteen companies expect to increase the number of employees by 1 percent to 5 percent. Four merchants foresee no change and three predict an increase of more than 5 percent.

While companies foresee bigger payrolls, 65 percent of retailers/wholesalers do not plan on expanding their facilities.

But this may not exactly be the case. According to Smith, many successful stores are “expanding through concepts.”

For example, The Gap, a clothing retailer based in San Francisco, formed GapKids and babyGap as concept stores and is now opening Gap 2000 as a way to combine all its product lines, Smith said.

By doing this, retailers are adding new product lines, adding to their brand, and creating more employment opportunities, he said.

Although brick-and-mortar stores seem to fare well, online retail is not quite there yet.

While it may still be too early to measure the true impact of E-commerce and Y2K, most people believe the impact is and will continue to be minimal.

Sixty percent of respondents believe that E-commerce has had a “minor impact” of their company so far. Of the rest, three firms reported no impact and five felt E-commerce has had a “significant impact” on the business.

“I don’t think (E-commerce) has been significant to date, but it has prospects to become significant in the future. We believe that the experience of shopping is integral to young women’s retail,” Carter said.

The company is planning to establish a Web site in the spring, but it will be focused “on brand building objectives with little or no focus on E-commerce,” he said.

Carter believes most retailers are positioning themselves in the Internet marketplace and are waiting to see what happens. “Brand building and a perception that they are Internet savvy is important to them.”

Retailers, however, cannot ignore the Internet as another distribution channel, Carter said.

“How significant it actually becomes is to be seen,” he said. “Separating the experience from the merchandise will be more difficult with (fashion) retail than maybe others. As a result we believe that mall-based retail will continue to be attractive.”

Smith agrees, saying consumers like to see, touch, feel and try on clothing.

He believes that it may gain more significance as a distribution system, but that consumers are more likely to use the Internet as a shopping tool.

However, technology in general is being embraced by retailers to help with inventory and customer service, Smith said.

And will retailers be bitten by the Millennium Bug?

Survey respondents were evenly split on the issue. Ten believe there will be “no impact” and 10 expect a “minor impact” to their operations.

“From what I have read, we do not see this as an issue,” Smith said, adding that any potential problems have been fixed or minimized. Westfield has been communicating with retailers and sees no major issues with Y2K, he said.


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