Standard & Poor’s specialty retail equity analyst Karen Sack has some bad news for many specialty retailers in S&P’s Industry Survey on Retailing Specialty, released August 29. In it, she predicts that for the remainder of 2002, specialty retailers will continue to face intense competition, market saturation and limited pricing flexibility, no matter what the health of the economy.

Sack's report includes some not-so-gloomy exceptions. She reports, for example, that sales trends in the first five months of 2002 are similar to the same period in 2001: consumers are spending money, but have modified their behavior to benefit some categories over others. In what looks like continued evidence of a post-9/11 ‘nesting’ urge, strong market conditions and favorable demographics persist for furniture, home furnishings, electronics and appliance stores, gaining 6.1% in year-to-year sales.

Sales at building materials, garden equipment, and office supply stores were also up more than 5% in the first five months of 2002, while bookstores experienced a 6.8% year-to-year gain in sales after seeing some weakness earlier in the year. Specialty clothing and accessories sales increased 3.0% in the first five months of 2002; that poor showing is attributable to a 3.4% decline in sales of men’s clothing, which has been weak for the past two years.

Standard & Poor's Sack forecasts that while a strengthening economy will improve the outlook for specialty retailers, results will vary according to category and retailer, as it has so far this year. "Americans' appetite for home-related merchandise should continue unabated," notes Sack, but as the numbers for other categories suggest, America might be over-retailed.