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Retail Sales Are Climbing, but Challenges Remain

Retailers will be facing hard short-term decisions coming into the holiday season when it comes to addressing the new tariffs imposed on Chinese imports. As it stands now, there will be a 10% tariff on $200 billion of Chinese goods with duties rising to 25% by the end of the year. Retailers are being faced with determining how best to address the cost increases - pass the costs on to consumers or let their margins take the brunt. The new challenges are combined with addressing elevated spending on technology, logistics, increased labor expenses and absorption of higher gas prices.

Despite the challenges, however, there is positive news. TheNational Retail Federationis expecting retail sales to increase by 4.5% in 2018 due to higher wages and more jobs putting more money in consumer's pockets. Equally optimistic isDeloitte'sannual retail holiday sales forecast, which projects that retail holiday sales are expected to increase from 5%-5.6% over last year with a 17%-22% increase in e-commerce sales.

Unfortunately for retail, though, the positive news could be overshadowed by long-term challenges. Consumer debt is arguably supporting a large part of the economic growth and is the highest it has been on record, and according toS&P Global Ratings, $31 billion in retail debt matures over the next 2 years in an increased interest rate environment. This is combined with a trade war that shows no end in sight.

It is worth considering that the retail story could change drastically in 2019. 

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