NEW YORK (TheStreet) -- Despite the outlook from economists stating retail growth is faced with challenges the remainder of this year, retail sales growth will still come out strong for investors. A peek ahead looks at what may be the next key drivers of retail, economic growth, its challenges and opportunities.

American consumers are not likely to drive economic growth. Economists state that retail growth is still faced with challenges the remainder of this year however with higher income rates, consumers are expected to spend more for this year, strengthening the economic recovery.

Luxury retailer Nordstrom (JWN) has been making significant moves right to the top in the first half of 2014. The chain saw a rise in sales due to serving the higher-end consumer market, while Wal-Mart (WMT) which caters to low-and middle-income households had remained cautious resulting in the retailer experiencing weakened sales.

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Stronger sales growth is expected for retailers toward the end of year. With back to school and holiday sales still ahead, customers have adapted to new technologies and retailers are pressured to keep up with the pace.

According to Deloitte's holiday survey, 68% of smartphone owners and 63% of tablet owners plan to use their devices for holiday shopping.

"Retailers should continue to focus on and invest in understanding the customer psyche and leverage innovation to drive loyalty and customer engagement," said Alison Kenney Paul, vice chairman and U.S. Retail and Distribution leader, Deloitte LLP in Deloitte's 2014 outlook on retail.

Investors are expected to take notice on disruption of trends in the retail industry until the remainder of the year. With the customer changing at an even faster rate, retailers are working to deliver personalized experiences through omnichannel.

Another challenge lies with brick-and-mortar retailers having pressures to adapt and engage consumers with innovative technologies. There were also challenges within the supply chain's demand for testing new approaches.

Retailers will have to make bigger moves on available opportunities to compete over the next six months.

Further investments in innovative in-store technologies, mobile point of sales (mPoS) technologies are changing the retail landscape. Additional technologies such as 3D printing and radio frequency identification (RFID) are also being deployed as a disruptive trend for retailers.

The "Internet of Things" (IoT) is evolving and this will also force retailers to build out an infrastructure which supports connecting people-to-people (P2P), machine-to-people (M2P) and machine-to-machine (M2M) along with advanced analytics capabilities for such systems.

Amid economic uncertainties, retail is still a lucrative sector for investors. The key is to look for companies who display significant growth over the current economic recoveries and industry challenges.

A recent earnings expectations report from Zacks indicates the retail sector as encouraging with projected earnings growth of 14% for the full-year 2015.

Momentum is present in the stock markets. The S&P 500 gained 7.0%, the Nasdaq climbed to 6.6%, while the Dow Jones Industrial Average rose to 3.1% year-to-date. According to data from the Bureau of Labor Statistics, unemployment rates for June declined to 6.1% from 6.3% in May, reaching its lowest level since 2008.

Although the midyear is just beginning, retail's growth and technology opportunities are there. For investors, domestic retail markets are expected to reach moderate growth, while retailers will look to new markets to capitalize on international expansion. Those consumers with the "new" disposable income are primary retail targets within such markets. The same indications and trends which happened in the first half are likely to continue into second-half.

At the time of publication the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

TheStreet Ratings team rates NORDSTROM INC as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

"We rate NORDSTROM INC (JWN) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations, increase in stock price during the past year, expanding profit margins and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 6.8%. Since the same quarter one year prior, revenues slightly increased by 6.6%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Net operating cash flow has increased to $217.00 million or 34.78% when compared to the same quarter last year. In addition, NORDSTROM INC has also vastly surpassed the industry average cash flow growth rate of -79.52%.
  • NORDSTROM INC' earnings per share from the most recent quarter came in slightly below the year earlier quarter. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, NORDSTROM INC increased its bottom line by earning $3.72 versus $3.56 in the prior year. This year, the market expects an improvement in earnings ($3.90 versus $3.72).
  • Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Looking ahead, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over the past year.
  • 41.86% is the gross profit margin for NORDSTROM INC which we consider to be strong. Regardless of JWN's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, JWN's net profit margin of 4.77% compares favorably to the industry average.

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