A good year - but is that the best in store?

• Position: Retail industry - Industry Overview

For many retailers, June marked the end of a fiscal year, one in which total sales in the state rose 11%. But any euphoria was dampened by a disappointing back-to-school season followed by Grinchlike predictions that Christmas would be a bust. "Santa's sleigh will be light," says Kenneth Gassman, a retail analyst with Davenport & Co., a Richmond, Va.-based brokerage.

"I think we've peaked in this recovery and are in the middle of a soft landing," says J. Walter McDowell, president and CEO of Wachovia Bank of North Carolina. "While retail is healthy, it's not as vibrant as it was in 1993 and 1994."

Gross retail sales were $86.6 billion for the fiscal year ended in June, up from $78.0 billion in '94. Some of that increase, though, can be attributed to inflation, says First Union economist Mark Vitner. "Retail was still growing last year but at a decelerating rate." Back when the recovery was more robust, "retailers could get a positive hit just by opening stores. Now they're moving toward having to shut down or sell some of those stores."

Still, observers predict that retail sales in North Carolina will continue to grow. That's because of an increasing number of "big box" stores - Wal-Mart, Home Depot, Circuit City and the like. These warehouse-sized, budget-oriented retailers had exceptionally strong sales in '95, McDowell says, and that should continue in '96.

Vitner praises 362-store Lowe's Cos. for the successful "in-your-face" strategy it has taken against Atlanta-based Home Depot, which has 388 U.S. stores. Each has dotted North Carolina suburbs with 100,000-square-foot-plus stores, sometimes across the street from one another. The war of competitive pricing that North Wilkesboro-based Lowe's and Home Depot have engaged in has driven other home centers, such as Hechinger, out of the state.

North Carolina is seeing more such competition between category-killer stores. For example, Incredible Universe, a unit of Tandy Corp., opened a warehouse-sized store in Charlotte to compete with Circuit City. And in Winston-Salem, Dayton-Hudson's Target plans to duke it out with Wal-Mart, which will build a superstore near Hanes Mall. The biggest problem those retailers face, Vitner says, is finding enough people to staff the stores.

Most of North Carolina's home-grown retailers had a good year. Wilmington-based Reeds Jewelers, whose 100 stores are mostly in shopping malls, developed a flexible credit policy that Gassman says has placed it at the top...