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Americans have learned to shop with the virus
The 1.1 percent decline in July retail sales reported earlier this week by the U.S. Census Bureau is nothing to be overly concerned about. That’s the analysis of the National Retail Federation (NRF), which sees strong consumer demand going forward.
“Despite this monthly dip, the economy has rebounded quite well and is more than just on the mend,” NRF Chief Economist Jack Kleinhenz said in a statement. “The consumer has continued to be resilient and recent price increases brought on by constraints in the supply chain have not dampened the robust demand seen during the past year. If retailers could find more inventory, they could sell it.”
NRF pointed out that despite the monthly decline, year-over-year numbers are trending positively. Its numbers show that revenues were up 9.5 percent year-over-year in July and 12.8 percent in June. Its three month average is plus 13 percent compared to the same period in 2020.
Consumer electronics and appliance stores and health and personal care product retailers were able to buck the July dip with gains of 0.3 percent and 0.1 percent respectively on a month-over-month basis. The two verticals year-over-year numbers improved 23.4 percent and 8.4 percent respectively.
The rise of COVID-19 cases, hospitalizations and deaths tied to Delta variant in communities where vaccination rates are low is becoming more of a concern for Americans.
“Consumers are a bit fearful again as we approach another possible wave of COVID-19 infections, but they’ve learned to live with the virus and shopping continues,” said Mr. Kleinhenz.
Matthew Shay, NRF president and chief executive officer, said that the economy remains strong with support of federal tax credits and rising incomes in a competitive job market.
“We remain optimistic that the strength of the American consumer and ingenuity of the retail industry will produce continued growth heading into the fall,” he said. “We encourage people to get vaccinated as soon as possible to stop the spread of the virus and to keep our economy growing.”
Discussion Questions
DISCUSSION QUESTIONS: Do you share NRF’s assessment that supply chain disruptions and not consumer sentiment pose the most immediate risk to retail? Will Americans continue with their recent returns to in-person shopping or do you see the Delta variant causing a fallback to patterns that developed early on in the pandemic last year?
Poll
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There is no doubt supply chain disruptions are wreaking havoc on retailers as low stock situations are visible in stores everywhere.
Rich and I have been in Las Vegas for a week now, speaking at multiple trade shows. The retailers are here, masked up, and ready to buy.
We also found plenty of consumers at The Forum Shops at Caesars Palace last night, one of the busiest malls in the U.S., but they weren’t carrying a lot of bags. Our guess is that’s because many retailers were low on stock. Nike, for example, had large open spaces that once had been filled with product. Other retailers closed their doors at 7:00 pm, when the rest of the mall was open until 9:00. The designer shops that remained open were admitting one group of shoppers in at a time. While this helps with pandemic mandates, it kills browsing, which leads to impulse purchases.
From what I have seen, I agree that consumers have learned to shop during the pandemic. We will continue to roll with the punches, doing whatever is necessary to continue to shop in-person because, believe it or not, we enjoy shopping in-person.
While supply chain issues are putting a damper on retail, the impact of the virus should not be undersold. Looking at shopper data released by McKinsey last week, the larger percentage of in-store shoppers are the unvaccinated. Those who are vaccinated are tracking higher with online shopping. And as the uncertainty of the Delta variant, the inconsistency of masking rules from state to state, and confusion around booster shots starts to gain prominence in the news over the coming weeks, the potential for declining in-person shopping (and trade shows) looms large. We should remember that the Spanish Flu epidemic took five years to get under control. Consumer sentiment is highly dynamic and already shifting with the coming headwinds.
The reported 1.1 percent decline in retail sales is absolute nonsense. It results from the incredibly bad reporting by the Census Bureau and the consequent pick up with any lack of critical analysis by the media.
Here are the facts using non-adjusted numbers – which is the correct way of analyzing as it is the same way retailers report and is the most truthful way to look at the data:
Consumers spent $2.3 billion more on retail in July 2021 than June 2021. They spent $87.6 billion more in July 2021 than July of 2020. They spent $104.9 billion more in July 2021 than July 2019.
By any measure, retail sales are up, not down.
Sure, there are reasons for this such as a transfer of spend from services to retail, higher savings rates, and so forth – and some of those things may taper off as we move through the year. But let’s start from a place of getting the numbers and narrative right! After all, does anyone not wonder why the results being reported by retailers right now – which are really strong – are so divergent from the gloomy stats of the Census Bureau?!
Month-to-month reporting is another reason why the myth of the “retail apocalypse” continues. Americans have money in their pockets and they’re spending it.
I think it’s a combination of retailer and consumer behavior. We saw toilet paper and other “survival staples” face stock-outs this week, so we do know that consumers are once again reverting their shopping behaviors to some of what they were in the height of the pandemic. Mask mandates are trickling back in across the country, so we have yet to feel the full effect of that on foot traffic, and those inevitably discourage subsets of shoppers from pursuing brick-and-mortar. That said, retailers still haven’t gotten their supply chain issues sorted, and the holiday season is anticipated to exacerbate that, so there’s certainly fault there as well.
It’s a two-way street – retailers and consumers are both partially responsible. However we can’t fault shoppers for their in-person shopping avoidance, so it’s up to retailers to do everything they can to put consumers at ease and ramp up alternate paths to purchase.
I tend to agree with the sentiment that overall shopping may be more impacted with supply chain and related logistics issues. However I do see the Delta variant, if it doesn’t peak soon, having a negative impact on the return to stores. One need to look no further than this past year to see what COVID-19 has done to in-store shopping and inside dining. The Delta variant holds the same threat.
We are learning to live with the virus and I see plenty of appetite for nearly all things retail from DIY to home goods to foodservice to apparel. I have been actively watching all of this in various parts of the country and there is an underlying sense of optimism and confidence – despite the Delta variant – with shoppers who want to move on with their lives and get back to normality.
Consumers have some new shopping habits, but there is some sense of normality. In some areas, you would find it hard to tell if there was ever a pandemic. Overall, consumers are getting used to protocols and are shopping again. As mentioned, some are modifying their habits and the way they shop, but we are coming out of the darkest part of the pandemic. The Delta variant will cause a “blip” in the retail numbers, but it will be small compared to what happened in early in COVID-19 pandemic. No doubt COVID-19 and the Delta variant impact inventory management and distribution. Retailers will adjust as necessary.
The pandemic has brought out in the changing consumer landscape that consumers are an extremely resilient and adaptive group. During the pandemic, some consumer behaviors emerged, leading to a significant paradigm shift to a digital-first operating model. The shopping journey originates via digital channels and may extend to the stores for BOPIS or curbside pickup.
Unfortunately, the global supply chain constraints have wreaked havoc with the overall customer experience and retailers hoping to meet or exceed their revenue and comp goals. This is an element that both customers and retailers will have to deal with for months, if not years to come.
While we remain in recovery mode, the report from the census bureau is misleading, and it’s not all doom and gloom. We have to consider that for the first seven months of the year, sales, as calculated by NRF, were up 15.5 percent over the same period in 2020. That is consistent with NRF’s revised forecast that 2021 retail sales should grow between 10.5 and 13.5 percent over 2020.
My first thought is the utter uselessness of comparing numbers to last year; my second thought is that it’s possible to read a little defensiveness into Mr. Kleinhenz’ statements (of course the NRF is naturally bullish — until some new law is proposed, anyway — so it’s easy to confuse the two sentiments).
I’m somewhat in the middle on this: “learning to shop(live)” with isn’t the same as “back to normal” (and of course “normal changes over time); much as with crime or traffic or social norms, people often adjust in ways that are catastrophic to existing businesses. What happens to airlines if (even) 10% of people decide sitting with a mask on for a few hours is too much to bear, or the convention industry — and the hotels and restaurants that depend on it — find 20% of people are now actively avoiding crowds?
Of course. Many are returning to workplaces during August/September. Schools in many cases reopened fully in person for the first time in over a year during August/September. These moves drive increased retail demand as people need new clothes, supplies, etc.
For the segment of the population that is concerned about the Delta Variant, the information delivered by the CDC saying yesterday those vaccinated are more at risk to contract serious sickness now due to the vaccine effectiveness becoming less over time, this creates another complication. If CDC starts reporting the number of vaccinated individuals testing positive for COVID as part of routine testing (which is not currently being reported), it would be very interesting to see what those numbers look like. And how the publication of such numbers would impact discretionary retail.
Also with flu season right around the corner, we don’t know how that is going to impact things for the holiday season. Not to mention all of the supply chain issues noted.
Far from out of the woods here.
Month-to-month reporting is another reason why the myth of the “retail apocalypse” continues. Americans have money in their pockets and they’re spending it.