Retailers optimistic on '06

High Point— Reality and expectations didn't quite mesh for kids specialty retailers during 2006's first quarter, as measured by an exclusive Kids Today survey.

Kids retailers started the year in an optimistic mood, with 70% of participants in the quarterly Market Pulse survey expecting sales to be higher than in the first quarter of 2005.

And with the quarter nearly over as this issue of Kids Today went to press, the results are looking good. Fifty-nine percent of those surveyed in late February to mid-March said sales are tracking higher than last year. But 19% said sales are tracking lower and 22% said they're about even with 2005.

The reality of first quarter 2006 business echoes February results of The Conference Board's Consumer Confidence Index. Following three straight months of improvement, February confidence fell 5.1 points to finish the month at 101.7.

"Consumers are growing increasingly concerned about the short-term health of the economy and, in turn, about job prospects," said Lynn Franco, director of The Conference Board's Consumer Research Center, in explaining the downturn.

Retailers remain optimistic for the second quarter, with 71% in the latest survey projecting improvement over 2005 and just 7% expecting lower sales.

In addition to asking about results and expectations, Kids Today's survey also asked retailers what were the biggest issues affecting their businesses in 2006. Not surprisingly, the top two challenges cited were costs and competition.

While big boxes such as Babies "R" Us, and Target are formidable competitors, the most frequently mentioned competition comes from cyberspace. Nearly one-fourth of the retailers told Kids Today that Internet competition was eating into their market.

Consumers have an "if you don't have it in stock, I'll just buy it off the Internet attitude," according to one Western retailer. There also was recognition that competition is coming from other quarters as well, such as full-line furniture stores expanding their juvenile offerings.

When it came to costs, increased freight costs due to high fuel charges were a top-of-mind issue. "Freight costs are pushing up retail (prices) fast," said one Northeastern store owner. "Transportation costs to deliver goods keep rising due to fuel charges," said a retailer in the West, adding, "Increased costs make it difficult for stores to price their products competitively."

Vendor performance is a perennial concern for retailers, and these kids retailers were no exception. "Being able to get furniture in a timely manner" was an issue cited by a Northeastern retailer. Others chimed in with "High defect rates, poor customer service from vendors" and the "inconsistency of deliveries from importers."