Retail merchant dice.

• Position: North Carolina's retail industry - Industry Overview

Even in a rebound, it's a gamble: Consumer demand holds all the odds for what kind of year is in store.

Durable goods made a lasting contribution to the state's retail industry last year. People who had been putting off purchases because of the recession bought appliances, cars, trucks and home-improvement merchandise, which, combined with other goods, boosted retail sales to $78.0 billion from $71.2 billion for the 12 months ended in June. Third-quarter reports indicated the upward trend would continue.

"People refinanced homes, and that was an extraordinary engine in retailing in 1994," says J. Walter McDowell, president of Wachovia Bank of North Carolina. "If monthly payments suddenly dropped from $1,000 to $800, you went out and bought a car, appliances, durable goods."

Lee Keesler, regional executive of First Union Corp., says the trend was obvious in Mecklenburg County, where sales were up 11.5% in fiscal 1994 for its first $10 billion year. With rising interest rates, bankers aren't likely to hand retailers another mortgage-refinancing bonanza for some time, but Keesler anticipates cars and other big-ticket items to increase again by nearly 20% this year.

The overall pace, however, may slow as consumers take stock of the personal debt they ran up last year. "The economy was stronger in 1994 than many expected," McDowell says. "I think 1995 will be more of the same, but it's possible the economy will slow some."

The retail rebound of 1994 was evenly distributed throughout the state, says tax researcher Patti Seawell of the N.C. Department of Revenue, with sales generally up 8% to 10%. Gross sales of $1.8 billion in Asheville, for instance, had increased $228 million from the year before.

Not all Tar Heel retailers shared the prosperity. Weak apparel sales and increasing competition hurt chains that thrive in recession. Discounter Family Dollar Stores Inc. found itself in a curious squeeze. When its fiscal year ended in August, earnings of $63 million were down 2% from the year before. The Charlotte-based company also was trimming about 80 managers. It blamed flat sales, in part, and costs of a new distribution center. Analysts also say its low-income shoppers were moving up to Wal-Mart, Target and Kmart.

Cato Corp. faced a similar shift in shoppers for low- and medium-priced women's clothing. The Charlotte-based company predicted an earnings decline for the year of 2% from the previous year's $24.8 million.

Supermarket chains were...