The Real Deal on Retail Sales Numbers
This week’s headlines… The Commerce Department released the latest retail sales numbers this past week. The headlines seem clear enough. For example, the U.S. News & World Report wrote “Retail Sales Surge 1.7% in October.” That seems simple and self-explanatory. Yet, this metric is a little more complex than that.
The media has varied in its coverage of this number. Usually, though not always, they report the month-over-month change. Certainly, that is an important number in analyzing the most recent fluctuations in consumer spending. It can serve as a bit of a canary in the coalmine to emerging trends. But monthly fluctuations do not give a particularly robust view as to the longer-term.
If you were to read, for example, MarketWatch’s “U.S. Retail Sales Jump 1.7%, but High Inflation Plays a Role,” you may not feel like there is a real retail recovery going on. Considering that the Consumer Price Index surged 6.2% in October (the highest in 30 years), you might assume that a 1.7% increase in the amount that consumers spent compared to the pricing pressures at play in the marketplace was an anemic number at best. The conventional wisdom is usually right; inflated prices play out as inflated sales gains. Additionally, those inflated prices eventually always slow consumer spending down as more the price of goods outpaces what consumers are willing or able to pay.
Now, don’t get me wrong. This analysis was correct. Inflation did play a role and it will play a role for the foreseeable future.
Meanwhile, Forbes reported “Fueled by Travel Uptick and Holiday Shopping US Retail Sales Rose in October.” The uptick in travel is great news and certainly a factor behind sales increases. Travel fell off a cliff during the pandemic—creating challenges for high street brands that rely on tourism retail. While global travel is not expected to rebound before 2023 at the earliest (most likely 2024), domestic travel has According to the TSA, as of November 18th checkpoint travel numbers were at 84.2% of 2019 levels. They were, of course, 2.3 times higher than the same day in 2020.
Certainly, an early jump on holiday shopping may also be a factor behind these numbers. The Christmas creep—retailers encouraging holiday shopping earlier and earlier in the calendar year is nothing new. Gen-Xers may vaguely remember their teenage mall days in the 1980s when holiday decorations did not go up until right after Thanksgiving (early 80s) and then right before (late 80s). Increasingly now it is the day after Halloween. Regardless, news of supply chain disruptions and goods shortages (especially with toys) may have sparked consumers to start shopping earlier.
I do not dispute this analysis either. I agree and this also begs the question of whether record holiday shopping season projections will come to fruition. Here is why; that metric simply compares November and December sales from one year to the next within certain categories. October holiday shopping wouldn’t show up in the traditional comparisons. Virtually every group out there is predicting between 7.0% and 15.0% growth this year. So, will the National Retail Federation’s prediction of a record-setting holiday shopping season (between 8.5% and 10.5%) happen?
I still think so. Here is why… Monthly numbers are important, but if that is all you look at you risk losing sight of the forest through the trees. In normal times, you would look at them as well as the broader perspective of annual (Y-o-Y) numbers. The only problem is we are coming off an incredibly abnormal time. If you really want to gauge how retail is doing currently, the best comparison is against 2019—our last “normal” year. So how does retail stack up? Pretty amazingly.
In October:
Total retail sales (all categories) were up 16.0% against 2020. They were up 22.5% against 2019.
Total department store sales were up 27.6% against 2020. They were up 16.1% against 2019.
General merchandise sales (big box superstores) were up 15.9% from 2020 but 21.4% against 2019.
Apparel sales were up 25.8% against 2020. They were up 16.6% against 2019.
Building and garden supply sales were up 10.2% against 2020. They were up 30.0% against 2019.
Health and personal care stores were up 7.4% against 2020. They were up 11.8% against 2019.
Sporting goods, hobby, musical instrument, and bookstores; up 17.6% Y-o-Y, but up 37.9% from 2019.
Grocery sales were up 9.0% Y-o-Y, and 18.8% from 2019.
Restaurants up 29.3% from last year, but up 10.4% from 2019.
And non-store retail (eCommerce) is up 10.4% from 2020, but a whopping 40.4% from where it was in 2019 before the pandemic.
Every retail category is up significantly. That includes categories that did well during the pandemic (grocery, home improvement, sporting goods, eCommerce) as well as those that struggled (restaurants, department stores, apparel, etc.). Keep in mind that for most of the previous decade before the pandemic total retail sales growth annually was consistently in the 2% to 3% range—far from double-digits. eCommerce growth was typically in the 13% to 17% range.
So, what does this all mean? It means that consumers are on a spending spree because most (see last week’s commentary) are in a far better place financially than they were before the pandemic. Yes, inflation may have played a role in October. Same goes for early holiday shopping. But do not lose sight of the forest through the trees.
See you next week,
Garrick
