April retail sales data mixes good news and bad

(Source: Bigstock.)

There is good news and bad news from the latest retail sales data.

The good news is that April sales were solid, with growth of 4 per cent in overall spending. The bad news is that the Census Bureau has revised down its growth rates for February and March. February has been revised down from 6.2 per cent growth to 5.8 per cent. March has slipped from 2.4 per cent growth to 1.8 per cent. While these are not dramatic reductions, they do take a little of the gloss off previously positive narratives.

This month’s strong numbers were helped along by inflation, especially in foodservice and gasoline, and when this is stripped out underlying volumes rose a more meager 0.8 per cent. It is also important to note that the growth has been delivered off the back of a very weak prior year when retail sales fell by 0.7 per cent. This does not take away from the fact consumers spent more, but it should temper expectations that the growth rate in future months may not be quite as robust as the sector comes up against some tougher comparatives.

One factor that helped the April numbers is tax refunds, with the average refund running higher than in 2023. This gave some consumers a financial windfall which was helpful to spending. This is also one of the reasons why sales at electronics stores rose by 2.9 per cent over the prior year, with our data showing that television and gadgets continue to be a popular choice for those looking to spend their refunds.

Core retail sales – which strip out foodservice, gas, and auto sales – rose 3.9 per cent over April 2023. Again, tax refunds helped to drive some demand, but so too did a change in the weather which helped the beleaguered home improve sector swing into 4.5 per cent growth as more households started to undertake spring tasks around the home and in the garden. A lot of this is latent demand from March, after a slow start to the DIY spring season.

Sales at apparel stores declined by 0.9 per cent in value terms and by 1.7 per cent volume terms. After a small spending spree in March, many shoppers retrenched after refreshing their closets. From our channel checks, the quality of promotions and ranges also weakened in April which deterred some consumers from spending. The clothing market remains skittish and the need to entice consumers into spending is still paramount.

Sales at food stores dropped by 0.9 per cent. Much of this is related to the earlier Easter which meant food and candy sales that were made in April last year were pushed into March this time around. Food retailers are also starting to become more aggressive on price, albeit in select categories, as they seek to secure market share in a lower-growth environment. This is good news for consumers as it eases the pace of inflation, but it is not helpful to retail margins and profitability, which will remain under pressure in the grocery sector.

The performance of home and furnishings stores remains lackluster, with sales down 7.0 per cent. This is a disappointing outcome, especially given the financial boost from tax refunds. Consumers continue to deprioritize the category, especially at the bigger ticket end. A weak housing market, with transactions down over the past year, is also very unhelpful.

At department stores, sales plunged by 5.3 per cent. The earlier timing of Easter is admittedly unfavorable, but the sector is not helped by incredibly lackluster ranges, poor selling environments, and a general lack of focus. The poor performance underlines the fact that in a softer market, mediocre retail standards and disciplines give consumers the excuse they need to cut back and ultimately produce very poor numbers.

Overall, retail remains in a reasonable place – albeit with some choppiness in the numbers and softness in volumes. We remain cautious about the state of the consumer, but, for now, shoppers are taking various economic challenges in their stride.

  • Neil Saunders is MD at GlobalData.

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