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More Retailer Pain Ahead in 2010

The retail industry will likely face more problems in the coming year despite reports that post-Christmas sales are attracting shoppers. But some say that the post-holiday shopping rush won't even offer the deals that consumers were used to in the past.

One report in particular, released by Plunkett Research, says that 2010 could bring a continuation of the dismal sales retailers reported in 2009. We could even see more of the major bankruptcies that took place in 2009, such as the demise of Linens 'n Things, Circuit City and other chains.

Shoppers still face considerable challenges. Consumer credit continues to be tight. Health care costs are poised to increase. And maybe most importantly, the unemployment rate isn't turning around rapidly any time soon.

Meanwhile, retailers are facing severe competition between themselves. "A retailer without a significant competitive advantage doesn't stand a chance," the report says. Plus, more chains are selling a wider variety of products than ever, like the drug stores.

And those products are selling for less in efforts to attract budget-conscious customers into stores. This strategy can work well for some chains' bottom lines, but revenues end up suffering. And the luxury stores, like Nordstrom (JWN) and Saks (SKS), can't offer their items at prices low enough to make a big sales difference.

So what are the bright spots? Plunkett says that natural discounters like Walmart (WMT) and Costco (COST) will continue to lead the industry. Additionally, "items that promote a healthy lifestyle" will also give retailers a boost. The recent sucess of Vitamin Shoppe's (VSI) IPO points to that.

So retailers' fates in 2010 are likely tied to the larger economy. Once the macroeconomic environment improves, such as the unemployment rate, than we might see good days ahead for stores.

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