Photo: iStock | kupicoo
Americans Have Money to Spend. Where Will They Spend It?
It could be that American consumers are not into retailers that much right now. It’s not that they are ready to ghost merchants, but they don’t feel the need to respond to every text or email offering deals on a wide range of merchandise.
Retail sales in March were one percent lower than in February but still 2.9 percent higher than at the same time in 2022, according to U.S. Census Bureau statistics. February’s sales were down 0.2 percent compared to January, but were up 5.9 percent from last year.
The National Retail Federation (NRF), which does not include auto dealers, gas stations and restaurants in its calculations, had March down half a point from February with a year-over-year gain of 4.6 percent. February was up 0.5 percent compared to January with a 6.7 percent improvement compared to last year. NRF has retail sales up six percent year-over-year for the first three months of 2023.
“March spending reversed the strong pace of core retail sales we saw earlier this year,” Jack Kleinhenz, NRF’s chief economist, said in a statement. “These results reflect both slower economic activity and lower prices because of easing inflation – which means fewer dollars spent even if consumers buy the same number of goods – but there is still a lot of spending in the economy. Keep in mind that households tend to shop less during the post-holiday season. In addition, tax refunds typically contribute to spending at this time of year but are smaller this year than last.”
NRF has maintained its forecast for retail spending to grow between four and six percent in 2023.
The trade group points to growth in five of the nine retail verticals it tracks in March including online/non-store, health and personal care, grocery, sporting goods and general merchandise.
Discretionary purchase categories did not fare as well with furniture/home furnishings, building materials/gardening supplies, electronics/appliances and clothing/accessories reporting year-over-year declines in March.
Positive signs in the market include continuing high employment rates even with recent high-profile layoff announcements in retail (David’s Bridal, Best Buy, Walmart, et al.) joining those in the financial services and technology sectors.
Inflation continues to soften with the most recent Consumer Price Index and Producer Price Index reports supporting that trend.
Travel continues to be a bright spot in the economy, up nine percent over 2022, according to the U.S. Travel Association.
Discussion Questions
DISCUSSION QUESTIONS: Do you see a glass-half-full or half-empty scenario for retail over the final three quarters of 2023? Is the retail industry stronger or weaker today than before the pandemic?
Poll
Loading …BrainTrust
Ken Morris
Managing Partner Cambridge Retail Advisors
Brandon Rael
Strategy & Operations Transformation Leader
I remain mildly optimistic. But there’s no doubt that consumers are fatigued by the persistent inflation and high interest rates. And while I am mildly optimistic, I expect it will remain bumpy through this year as consumers continue to remain cautious with their spending. The retail industry remains resilient as ever, but that doesn’t mean that there’s not plenty of peril for retailers.
There is definitely a movement afoot — especially when it comes to retail, the sky falling is “just around the corner.”
Thanks to Jennifer Rubin for writing this piece that recently ran in the Washington Post: “Americans remain deeply pessimistic about the economy: A large percentage mistakenly think we’re in a recession or will be hit by one this year. As the recovery progresses, there’s less and less justification for the drumbeat of negative hot takes and gloomy economic speculation from the media. (New York Times headlines such as “Unemployment Is Low. Inflation Is Falling. But What Comes Next?” are practically a self-parody.) The economic evidence paints a very different picture.”
On a year-over-year basis, retail sales are still growing in value terms. However much this is because of inflation and underlying volumes are negative. The latest month also also saw sales declines in a lot of discretionary categories. Outside of core retail, foodservice sales grew by a robust 13.9 percent. While there has been some moderation since last month, the message is that consumers are still prioritizing experiences over buying things which adds another layer of pressure weighing down on core retail.
It seems like essentials–gas, electricity, groceries–are taking a bigger share of wallet than two or three years ago. Falling inflation is not deflation. Some retailers are stronger and some are weaker. To me the bigger issue is whether retail is more or less bifurcated than it was two or three years ago. I’m going to say more, and that’s not healthy.
The retail glass is half full, and continuing to fill up in new and semi-predictable ways. I think we are stronger after the pandemic. We learned some hard lessons over the last few years about inventory and sourcing which make us stronger now and going forward. Retailers have strengthened their supply chains, simplified their processes, and continue to invest in technology. Meanwhile, consumers have shifted their purchasing power a bit to experiential purchases, like more restaurant outings. So I’m optimistic about the last three quarters of this year.
By the way, I think most of these high-profile big brand shakeups are due to big shifts in society and not an unsound economy. Tech innovation—especially AI integrations with existing tech stacks—will help separate the winners from the champions going forward.
Consumers are being more surgical in how they spend in 2023. The higher costs in shelter, food and gas have definitely put a damper on other categories like fashion goods. Spending is impacted by higher prices, a move towards slow-fashion and re-commerce, and consumers valuing experience over tangible products. Spending in 2023 will be a paradigm shift to the new normal. No doubt the industry is far stronger than pre-pandemic!
The retail industry should be viewed as “glass half full.” I’ve seen signs that shoppers are definitely interested in shopping. However, accelerated by the pandemic, consumer behavior is forever changed.
To remain strong and attract shoppers, retailers must continue evolving–and there will be MANY bumps in the road ahead. But honestly, I believe the industry is stronger today and poised for growth.
The economy and unicorn retailers aside, shopping was boring before the pandemic and it’s not much better now. If we’re talking about apparel, even an offer of 60 percent off won’t get me into stores these days because there’s not much exciting to see once I get there. And I know I am not alone here.
Still, I am glass half-full positive. But I also believe retailers need to take a harder look at their customers to determine what they really want–expect–from a visit to the store.
The glass may be half-full as consumers see a bit of relief from inflation and employment remains strong. But I would argue that it’s a very delicate glass made of crystal. Politicians are playing chicken with the national debt and OPEC is delivering production cuts–it’s volatile.
I’ll just take on the second question. In 2019, we were talking about the retail apocalypse and the over-storing of America. On this very site we were opining on the hesitancy of grocery shoppers to move online and the lack of real in-store innovation. There were retailers going out of business and new ones popping up at about the same rate.
In 2023, talk of the retail apocalypse is a faint memory and grocery shoppers are well entrenched online. Retailers had to get innovative very quickly to meet demands placed on them by the pandemic and many of those have stuck. And there are still retailers going out of business and new ones popping up at about the same rate. Whether the industry is stronger depends on your measurement tools but it certainly doesn’t “feel” weaker.
Cautious optimism is in the air with February’s year-over-year sales gain of 4.6 percent. However we are far from out of the woods, with a looming recession, continued inflationary pressures, the war in Ukraine, and supply chain disruptions. Additionally, consumer confidence continues to take a hit as the technology, consulting, and financial sectors are restructuring and eliminating roles.
The core retail sector also has a reason to be concerned about prospects, as the experience economy is on the rise. While mass consumption is good for the retail economy, it is not aligned with the next generation’s sustainability philosophy to not over-consume and consciously find ways to mitigate their carbon footprint. Experiences and planning trips with family and friends are on the rise. Retailers offering complementary products and services in the lifestyle space, such as Lululemon, Patagonia, Nike, and others, will continue to thrive.
Wallets are tight, and attitudes about prices are deadening the rush to buy. Grocery stores, some of the best promoters, are scratching their heads, and so are customers. The consumer is caught in a cautious mode, and that is not lifting.
“NRF has maintained its forecast for retail spending to grow between four and six percent in 2023.” I hope so. In these inflationary times, they are forecasting flat item sales. Show me a retailer with 7 percent-plus dollar revenue increases, and I will give them a cheer. Is that asking too much?
The real and more pertinent question is, are we seeing a reordering in consumers’ discretionary spending? Will travel/experiences trump the next “thing” that we tire of within a year?
They will spend it judiciously depending on personal financial circumstances. The overall trends point to health and wellness. All segments are looking for value, though they have different definitions and criteria.
I’m seeing a great deal of movement towards travel. Planes are full, hotels are full, ABNB and VRBO arre posting healthy profits. I think people are balancing spending on essentials with spending on experiences.
I think you are seeing a reordering of spending priorities that will continue.