No Closure Season This Year Thanks to Sustained Consumer Spending Boom
Once again, we had a week in which store opening announcements far outpaced closure news. The first quarter of the year—more specifically January and February—has traditionally been the time (in good years and bad) where retailers, after the holiday rush, look to optimize their store fleets. Yet, that simply isn’t happening this year outside of a few brands. There are two basic reasons for this.
Before the CoVid-19 crisis, chain store and restaurant closures were already heightened. Remember, this was the era of the “retail apocalypse” headlines. In 2017, we tracked 8,500 major chain closures (chains with at least 50 stores). That number fell in 2018 to 7,300 and then shot up to 11,500 in 2019. But the arrival of the CoVid-19 crisis brought roughly 27,000 closures in 2020.
I had always found the “retail apocalypse” headlines annoying in their lack of nuance; they painted the entire sector with the same broad, bleak brush (as opposed to delineating the fact that the “apocalypse” was only impacting certain retail categories—others were booming). But in 2020, we saw something as close to a real “retail apocalypse” as I hope we will ever see in our lifetimes. In that year, the market contracted at a pace 3X the average of the previous three years combined. But this time, it included those categories that had previously thrived (restaurants, gyms/health clubs, entertainment, experiential, etc.). Only the discounters, dollar stores, and grocers seemed to be spared.
But the pandemic economic downturn ended up being one of the shortest in U.S. history and easily the strangest and most lopsided. Thanks both to the disparate impacts of the pandemic and immense amounts of stimulus, consumers started going on a spending spree before the close of 2020.
That spending spree continued in January 2022, despite the Omicron variant’s rampage, worker shortages, and 40 year-high inflation. Ultimately, what happened in 2020 was that retail’s nasty bandage was ripped off all at once, only to be followed by an unprecedented surge in consumer spending that has proven to be remarkably sustained and deep.
In the 20 years before the pandemic (2000 through 2019), retail sales growth averaged 3.6% annually. January’s numbers put us at 12.7% growth over 2021—but more importantly, at 23.3% above January 2020, before CoVid hit. This stretches across every retail category, including restaurants—which despite Omicron issues are still up 8.6% from pre-Covid January 2020 totals (they were up 27.9% over last year, but that was still before consumers had fully returned to eating out).
How long will this continue? Well, according to the Federal Reserve, Americans are still sitting on about $5 trillion more in their bank accounts today than before the pandemic. Stock market volatility, inflation, war, and other black swan events are all risks… but for the first time in about 15 years when I look at the risks to retail ahead, I am talking about cyclical economic risks… not structural issues created by the disruption of eCommerce. It’s a really nice change.
See you next week.
Garrick
