Retail sales rise, but challenges remain
Retail sales rise, but challenges remain
With the continued expansion of e-commerce, the brick and mortar retail industry has faced its share of challenges. In 2019, according to Coresight Research, a record 9,800 retail stores closed nationwide.
Despite the obstacles, retailers entered 2020 with a glimpse of optimism. With record low unemployment, rising wages and high consumer confidence, many economists were projecting an economic growth rate of 3-3.5%, the strongest pace since 2004-05. The National Retail Federation projected retail sales to grow between 3.5-4.1%.
But, in March, the COVID-19 pandemic brought a once-robust U.S. economy to a grinding halt. Government-imposed mandates forced 630,000 retail outlet stores across the nation to suddenly cease their operations.
The longer these mandates last, the greater the likelihood many of these stores will never reopen. So far this year, 4,547 retail stores have permanently closed, including hundreds of stores each from name-brand retailers such as J.C. Penney, Victoria’s Secret and GNC. Pier 1 has already begun liquidating the entirety of its remaining store locations. Unfortunately, the projected number of store closures is only expected to skyrocket. In total, Coresight Research expects a staggering 20,000-25,000 stores to close by year-end.
On Tuesday, the retail industry received a glimmer of hope. The U.S. Department of Commerce’s monthly Retail Sales Report showed that retail sales surged by 17.7% in May, surpassing Wall Street’s forecast of just a 7.5% gain. April’s Retail Sales Report, which reflected the brunt of the government’s mandated business closures, showed a 14.7% decline in sales – the biggest monthly decline in recorded history dating back to 1992.
Of the 13 retail sectors tracked by the Department of Commerce, all posted a monthly increase in sales during May. The biggest gain was in Clothing & Clothing Accessories Stores, which recorded a massive 188% increase in sales. Rounding out the Top 5 performers were Furniture & Home Furnishings Stores (+89.7%), Sporting Goods, Hobby, Musical Instruments & Book Stores (+88.2%), Electronics & Appliance Stores (+50.5%) and Motor Vehicle & Parts Dealers (+44.1%).
For the financial markets, the broader landscape for the May retail sales data is its implications on consumer spending. Consumer spending is the biggest driver of our economy, accounting for more than two-thirds of economic growth. And in 2019, we saw the impact that strong consumer spending has on the U.S. economy.
Despite our global trade disputes, in 2019, we still had a very strong U.S. economy. But if we break down the metrics of that economic growth, it was far from a perfect economy. In fact, we had noted weakness in business spending, capital expenditures and manufacturing. However, consumer spending was strong enough to carry the load of U.S. economic growth through this challenging time.
The financial markets realize that strong consumer spending can help overcome a lot of deficiencies in the economy. This year, the new challenge is the COVID-19 virus. And, like we saw in 2019, there will be parts of the economy that will take longer to rebound. But if consumer spending remains strong enough, it can help the U.S. economy overcome these flaws – just like it did in 2019. And given the extensive economic damage caused by the COVID-19 virus, that’s exactly what we’ll need.
Mark M. Grywacheski, Investment Advisor
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Quad Cities Investment Group, LLC is a registered investment advisor with the U.S. Securities Exchange Commission.
