Retailers brace for consumer slowdown in 2008

By Nicole Maestri

NEW YORK (Reuters) - "Dream Big" is the theme of the National Retail Federation's annual conference taking place this week and that is likely to be what many U.S. retailers will do to survive 2008 -- dream big of greener pastures.

Since the trade group's annual convention kicked off in New York on Sunday, no one has minced words about the difficult environment greeting retailers this year.

"We expect to see economic headwinds intensify and spending dampen, especially in the first half of this year," said NRF President Tracy Mullin in her opening comments on Monday.

In an interview on Sunday, the day the show began, NRF Chief Economist Rosalind Wells said the environment is "just not going to feel good to anyone."

The NRF is predicting that retail industry sales will rise 3.5 percent this year, their slowest pace in six years as consumers battle higher energy costs, fallout from the housing slump, and sluggish employment and income growth.

Meanwhile, economists are debating whether the United States is headed for a recession. Goldman Sachs said on Monday that it "now expects a further softening in consumption, which will likely tip the U.S. into a mild recession" during the middle of this year.

In the face of so many headwinds, Gymboree Corp's (GYMB.O) CEO Matthew McCauley tried to give the crowd a pep talk during his keynote speech.

He told of a time during a high school football game when he got scared and ended up getting trampled by an opposing team member. He said his coach yelled at him, telling him to never ease up because, "when you ease up, you get hurt.

"Isn't that the truth -- when we ease up we get hurt," he told the crowd. "...We all know that the competition is stiff ... and at the same time the economy is tough."

But he said retailers should stop focusing on what they cannot control, and instead look for ways to reinvigorate and reinvent their businesses.

"We as an industry can go well beyond just weathering the storm," he said.

WATCHING THE SUPER BOWL TO GAUGE CONSUMER SPENDING

NRF's Wells said there are two factors that could determine whether consumer spending will fall off a cliff this year.

"Employment and income is primarily what drives consumer spending," Wells said.

She said consumers will continue to spend -- even if it is at a lower rate -- as long as they have jobs and a paycheck.