2008: A tough year ahead for retail

NEW YORK A declining housing market, tightening credit, and the possibility of an economic slowdown, all signs are pointing to a difficult year for retailers.

In its 2008 outlook for the U.S. retail industry, Deloitte & Touche said that due to strains on consumer finances, discretionary spending will likely be reduced, and retailers need to focus on keeping costs down, keeping inventories lean and payrolls low, as well as rationalizing other expenses, particularly selling, general and administrative.

Deloitte reported that while frugalness is important, retailers still need to attract new customers and maintain the loyalty of the old ones by creating a positive customer experience. Retailers should regularly evaluate the effectiveness of their marketing mix, said Deloitte, and adjust according to consumer needs.

Although retailers will be pressured to reduce costs this year, Deloitte predicts that they will make significant investments in technology. For example, retailers have been experimenting with an analytics-driven approach to merchandising called precision retailing in which they use data in their information systems to make more refined merchandising decisions, store by store.