Retail has started this year on a solid note with a 3.1 per cent rise in total sales. However, this includes inflation, and when that is removed, volume growth comes in at a more modest 0.9 per cent.
Core retail, excluding gasoline, automotive, and foodservice, grew by a relatively robust 4.3 per cent, with underlying volumes up 1.6 per cent.
The more modest volume uplifts reflect a shopper that’s increasingly selective and gravitating toward value – something that is very apparent in the latest round of retailer earnings. However, the consumer is showing up, and that’s during a traditionally slower month when many are still coming to terms with holiday bills – and that’s a win for retail.
It is also worth noting that the back end of January was disrupted by Winter Storm Fern, which affected large parts of the US. While the storm was relatively brief, it was helpful to some categories, such as home improvement, grocery, and online shopping. It was less helpful to more discretionary categories as it curtailed some in-person shopping; it also had a negative impact on auto sales. Nevertheless, in the scheme of the whole month, retail took the weather event in its stride.
On a sector basis, apparel stores had a good month with sales up by 4 per cent over the prior year. The exceptionally cold weather helped to drive up sales of winter gear and coats, but there is also continued interest in more fashionable styles as shoppers look to treat themselves. The gains, of course, are somewhat uneven, with off-price and value channels outperforming.
Grocery stores had a reasonable month with sales up 1.9 per cent. However, underlying volumes were virtually flat. Consumers continue to exhibit savings behaviours, including trading down to private label products and migrating to value players and channels.
For once, the home improvement sector performed well with 2.3 per cent growth over the prior year. Some of this was weather-related, with more consumers preparing homes for winter and buying supplies and tools to deal with heavy snowfall. However, some lighter decorative categories also saw traction.
Department stores seemed to fare badly with sales down by 9.8 per cent. The reported pace of decline seems a bit sharp compared to reality, but it does reflect a pullback on discretionary spending during the storm. This hit department stores harder than most, as many sales are driven by foot traffic to physical locations.
Non-store sales grew by 8.6 per cent, the best pace in just over a year. Again, the poor weather drove more people online, but so too did the growing inclination to hunt around for the best bargains and deals.
With the year off to a good start, the focus is now firmly on how things will progress. In the near term, there is some room for optimism, as tax refunds look likely to exceed last year’s. While not all of this windfall will boost retail, consumers have traditionally used part of it to buy things they want – especially in bigger ticket segments.
Beyond the refund months, the outlook is more mixed. While consumer sentiment remains choppy, underlying financial fundamentals for most households are pretty stable. There are some small cracks appearing, such as in Friday’s job-loss numbers, but they are not yet sufficiently pronounced to have a huge impact on spending.
So, overall, retail looks set to continue on a middle course this year: Reasonable headline growth, flatter volumes, with market share as the key battleground where winners and losers fight it out.
About the author: Neil Saunders is MD at GlobalData.
