Economy
15 July 2022
US retail sales rise 1% in June, bolstered by ecommerce
Meanwhile, consumer sentiment is still gloomy.
Photo by rupixen.com on Unsplash
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An increase in ecommerce sales was among the drivers of an uptick in US retail sales in June.
According to the US Department of Commerce, the total retail sales of $680.6 billion for June was a 1% increase over May. Year-over-year, the total represented an increase of 8.4%. The retail sales numbers came in just slightly above an analyst expectation of a 0.9% increase, CNBC reported.
The retail sales numbers come with the caveat that this data is not adjusted for inflation. Still, their bounce back up from a slight May decline offers evidence that consumers are continuing to spend in the face of rising prices.
Further buoying this sentiment, the Commerce Department also revised upward its data for May. It initially reported a decrease of 0.3%. Now, the Department is reporting a decrease of 0.1% for the month.
Online sales are partially to thank for the June increase. The nonstore sales category, which includes ecommerce, posted the highest month-over-month increase of any category other than gas stations, which are notoriously volatile and have seen massive increases with the rising price of gas. Nonstore sales were up 2.2% month-over-month, and rose 9.6% year-over-year. The growth points toward shoppers continuing to turn to ecommerce, even as in-store foot traffic has picked back up this year. It could reflect that shoppers are turning to ecommerce at a time when gas is expensive, and prices are rising across the economy.
This news arrives on a week when FTI Consulting projected that US ecommerce sales will reach $1 trillion for the first time in 2022, and Amazon Prime Day delivered the top two ecommerce spending days of the year.
Other notable changes came in the following consumer goods categories:
- General merchandise stores, including florists, pet stores and office supply stores: 1.4% month-over-month increase, 15.1% year-over-year increase.
- Furniture stores: 1.4% month-over-month increase, and 4.6% year-over-year.
- Clothing stores decreased 0.4% month-over-month, and fell 0.2% for the year.
- Health and personal care stores declined 0.1% month-over-month, and fell 0.6% year-over-year.
- Electronics stores were up 0.4% month-over-month, while falling 9.1% year-over-year.
A calculation of retail sales by the National Retail Federation that leaves aside gas stations and restaurants showed that retail sales were up 0.6% from May and rose 5.8% year-over-year.
As with other consumer metrics, this data is being monitored closely as prices rise at a record clip. Earlier this week, a report from the Consumer Price Index showed that the inflation rate spiked to a new 40-year-high of 9.1%.
The Commerce Department’s monthly report on retail sales is a key measure of demand at a time when the Federal Reserve is taking steps to cool off the economy. The Fed raised interest rates 0.75% in June, and is expected to take action at another meeting later in July. The retail report will be an important factor in determining the size of the interest rate hike, especially given that the Fed appeared to adjust the size of June's hike in the late stages of its decisionmaking process.
“June’s numbers show consumers are powering through price pressures, but inflation is eating away at savings built up during the pandemic and is wiping out recent income gains,” NRF Chief Economist Jack Kleinhenz said, in a statement. “Inflation remains a challenge to consumers trying to make ends meet and will continue to be an issue even if it cools down in the months ahead. Despite that, consumers are holding up notably well and continuing to spend.”
Producer Price Index near record highs
On Thursday, another key economic indicator for consumer goods showed inflation rising. The Producer Price Index, which is a measure of prices for goods at wholesale and other levels before they reach retail, rose 11.3% in year-over-year in June. That was the largest increase since the jump of 11.6% in March, which was the highest spike for this index ever recorded by the US Bureau of Labor Statistics. The increase was mostly pegged to a 10% jump in energy prices.
“Today’s surge in wholesale prices offers companies and consumers little reason to be confident,” said Katie Denis, VP of communications and research at the Consumer Brands Association, in a statement. “Energy prices underpin everything CPG companies do to make and deliver products to consumers, and their ripple effect is showing up in the price of commodities the industry heavily relies on.”
Consumer sentiment hovers around lows
Even as consumers continue to spend, they remain downcast about the economy overall. With a 1.1% increase from the June measure, the initial July reading of consumer sentiment from the University of Michigan was “relatively unchanged, remaining near all-time lows,” wrote UM Survey of Consumers Director Joanne Hsu. More consumers are blaming inflation for eating away at their living standards, matching levels seen during the Great Recession. Additionally, the belief that one should make a purchase now to avoid higher prices later gained a stronger foothold.
Taken together, this week's data points to an economic picture where consumers are spending, but they're doing so with some hesitation about rising prices, and less certainty about what's ahead.
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Retail Channels
02 June
Macy's sees 'reset year' for ecommerce
The retailer's marketplace is expanding quickly.
When it comes to ecommerce growth, was the pandemic a blip or a new trendsetter?
As we move further from the height of COVID-related closures, it’s a question that will start to be answered through the lens of history.
So far, the narrative of ecommerce growth in the U.S. from 2019-2022 has gone like this: Ecommerce’s share of overall retail saw a huge spike at the height of the pandemic in 2020-21, when goods in general were in demand and online shopping was necessary to preserve health and safety. Experts looked out and saw a permanent exponential change in the penetration of ecommerce as a share of retail that would last beyond the pandemic. Then, in 2022, everyone went back to stores and the trendline came back to 2019 levels. Growth was no longer exponential. There was still growth, but it was not happening as fast as during the pandemic period.
With this in mind, it’s worth pointing out that 2023 is the first year that there likely won’t be a pandemic-influenced swing to influence ecommerce growth. It is also a year where demand has suffered challenges amid inflation and interest rate hikes.
So as we seek to determine the importance of ecommerce to overall retail, it’s worth it to continue taking a close look at what growth trends retailers are seeing now, whether ecommerce is remaining resilient amid consumer pullback and how retailers are preparing for the future.
The latest example arrived this week from Macy’s. It’s a fitting one for the times. Overall, Macy’s is seeing a slowdown as consumers pull back on discretionary purchases, with sales declining 7% in the first quarter versus the same quarter of 2022. Digital sales were down 8%.
Macy’s is particularly susceptible to the macroeconomic headwinds that many brands and retailers are facing, as spending among the middle-income consumers it counts as a primary customer base is particularly softening, said GlobalData Managing Director Neil Saunders.
But while ecommerce is slowing overall, the importance it gained to Macy’s business during the pandemic is remaining in place.
In 2019, ecommerce made up 25% of Macy’s revenue, CEO Jeff Gennette told analysts on the company’s earnings call. That jumped to a high of 44% in 2020. By 2022, digital reached 33% of sales after the pandemic boom. In the first quarter of 2023, it remained at 33%. So, while the trend line dipped after shoppers returned to stores, ecommerce share still settled in at a higher post-lockdown point than it was before the pandemic.
This came in a quarter in which traffic was “relatively good” across both online and in-store, Macy’s CEO Jeff Gennette said. It was “flattish” online, and slightly up in stores.
“We do expect that this is the reset year with the penetration between them,” Gennette said. “But we do expect more aggressive growth in digital in the future versus stores as we think about '24 and beyond. And that's going to be foisted by a lot of ideas and strategies.
Over the last year, the retailer has made investments in boosting ecommerce, even as shoppers returned to stores. In a bid to boost the assortment of goods available online, Macy’s launched a marketplace in September 2022 that welcomes goods from third-party sellers.
The marketplace had an “outstanding” first quarter, said Macy’s President Tony Spring, who is poised to succeed Gennette as CEO next year. Gross merchandise value increased over 50% when compared to the fourth quarter of 2022, while the average order value and units per order for marketplace customers was 50% above those not shopping at the marketplace.
Macy’s is continuing to build the marketplace even as it racks up sales. The retailer added 450 brands, ending the quarter with 950 brands.
This is helping to draw in new customers, as well as younger existing customers who are buying more items, resulting in increased basket size.
“We're very excited as to how marketplace is really attracting the Gen Z customer, particularly in categories where it was not economically feasible for us to carry in the past,” Gennette said.
In the end, Gennette said a strong digital and social presence is key to attracting younger consumers. That's a different type of shopper than other age groups.
“We know the younger customer starts first online,” Gennette said. That behavior will still be in place as the generation gets older, and gains more buying power in the process.
Going forward, Macy’s is seeking to expand the model to other retail banners in its portfolio. Bloomingdale’s will open a marketplace in the early fall.
The Macy’s ecommerce trajectory isn’t that different from the wider U.S. ecommerce narrative detailed above. With one quarter of 2023 data, there is evidence that ecommerce share settled out at a higher point after the pandemic than where it started before COVID arrived. There is flattening now, but the retailer is taking it not as a sign of a slowdown, or a signal to change course. Rather, it sees changing consumer behavior as a reason to build for the future.
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