Retail Sales Slow in May

With the long Memorial Weekend approaching, retailers hope to jump start the summer shopping season to combat declining sales, according to the International Council of Shopping Centers (ICSC).

Retail sales have been on a steady decline in May as the ICSC and Goldman Sach's Weekly Chain Store Sales Index reported that the pace of sales were down for the fourth consecutive week. Sales declined 1.7 percent for the week ending May 19, the ICSCN announced on May 22.  Sales the previous week declined .8 percent.

Michael Niemira, ICSC's vice president of research and chief economist, said while the reason is not completely clear, he suspects that the weakness in the financial markets and concerns about the Eurozone has weighed on consumers' willingness to spend.

"I think the environment is a bit more choppy and uncertain, but expect the pace of sales to rev up again," Niemira said in an interview with REIT.com following ICSC's annual conference in Las Vegas this week. "The year-over-year pace is still fine, but I also expect it will moderate as the year progresses."

He predicts that spending patterns will "revert" to the longer term average after what he calls a relatively strong pace earlier in the year.

"With the arrival of Memorial Day and the kick-off to summer this coming weekend, consumers may start to be motivated for summer-related merchandise and help round out the fiscal month of May on a positive note," he said.

However, he said while holidays generate more traffic, the economy generates the income for consumers to spend. Niemira said the council's economic forecast suggests a favorable but unexciting pace for sales activity in 2012. He said the risks are more intense for 2012 with some of the yet-to-be-felt ripple effects from the European and U.S. debt problems.

"Watching a few metrics, such as employment or even jobless claims, will be insightful," he said, adding that receding gasoline prices should also help discretionary spending power, if consumers feel confident.

Niemira pointed out that while May sales have been slow, overall the retail market in 2012 is better than last year so far, but still uneven. He said while some retailers, like Macy's are doing well consistently, others are more erratic but trending fine, such as Kohl's, and others, such as J.C. Penney's are doing poorly.

"The biggest change is probably that the discounters, led by Target, have strengthened this year," he said.

Cedrik Lachance, analyst from Green Street Advisors, said overall the retail world feels like it's in a better place than it was last year, but the sector remains cautious. He said big-box strip center tenants are actively expanding but not yet considering second-tier locations.

Additional trends in the sector include muted development and the sale of lower productivity malls.

"Properties that are on the low end of the quality scale are on most strip center REITs' 'for sale' list," Lachance noted.