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U.S. retail sales showed continued slowing growth in March.
Data from the U.S. Commerce Department for March 2023 shows the following:
Total retail sales were $691.7 billion.
Month-over-month, that represents a decline of 1% from February.
Year-over-year, sales increased 2.9%.
Nonstore retailers, which is the category that includes ecommerce, grew 12.3% for the year, and 1.9% for the month.
Notable declines by category included electronics and appliance stores, which fell 10.3% year-over-year. Furniture stores declined 2.4% year-over-year, while home improvement fell 3.5%.
Notable gains were observed in health and personal care stores, which increased 7.1% for the year.
Core retail sales, as measured by the National Retail Federation, which leave out restaurants, gas and auto parts, showed a decline of 0.5% month-over-month, and an increase of 4.6% year-over-year.
The takeaway: Slowing growth, cautious consumers
While the first two months of the year started off strong, growth of retail sales is slowing.
“These results reflect both slower economic activity and lower prices because of easing inflation – which means fewer dollars spent even if consumers buy the same number of goods – but there is still a lot of spending in the economy,” said NRF Chief Economist Jack Kleinhenz, in a statement.
While slower post-holiday shopping and smaller tax refund checks play a role, the results point to signs that the convergence of inflation and interest rates may be taking more of a toll on consumers. To be sure, inflation is moderating, as observed in a whopping 14.2% decline in sales at gas stations. But people are still paying more for food, and that affects decisions on other purchases. In particular, the categories that include bigger ticket items such as furniture and electronics are in the “doldrums,” amid a downswing in the housing market and waning consumer confidence, said GlobalData Managing Director Neil Saunders.
“The message is that while shoppers are not retrenching completely, they are doing so selectively and are much more cautious about spending,” Saunders said.
Separate data from Circana (formerly IRI and NPD Group) showed that discretionary retail sales fell by 7% in March from the prior year, while volumes fell by 8%. That doubled average monthly declines in January and February. Circana Chief Retail Industry Advisor Marshal Cohen said a lack of new product is also a key contributor, alongside economic headwinds. He called for "new ways of thinking to reflect the changed consumer behavior and retail landscape."
“One of the biggest retail casualties of the pandemic has been the availability of new and refreshed products for consumers, and now economic uncertainty is putting even more pressure on the consumer’s interest in spending,” said Cohen, in a statement. “Manufacturers and retailers need to broadcast their value and prove their worth to the consumer now, in order to avoid a downward spiral later.”
This behavior is colored by increasing worries that higher prices will be sticking around in the near term. The University of Michigan’s initial reading of consumer sentiment for April edged up, but one-year inflation expectations rose from a rate of 3.6% in March to 4.6% in April.
“While consumers have noted the easing of inflation among durable goods and cars, they still expect high inflation to persist, at least in the short run,” wrote UMich Survey of Consumers Director Joanne Hsu.
Trending in Economy
Campbell Soup Company CEO Mark Clouse offered thoughts on messaging amid inflationary shifts in consumer behavior.
After months of elevated inflation and interest rate hikes that have the potential to cool demand, consumers are showing more signs of shifting behavior.
It’s showing up in retail sales data, but there’s also evidence in the observations of the brands responsible for grocery store staples.
The latest example came this week from Campbell Soup Company. CEO Mark Clouse told analysts that the consumer continues to be “resilient” despite continued price increases on food, but found that “consumers are beginning to feel that pressure” as time goes on.
This shows up in the categories they are buying. Overall, Clouse said Campbell sees a shift toward shelf-stable items, and away from more expensive prepared foods.
There is also change in when they make purchases. People are buying more at the beginning of the month. That’s because they are stretching paychecks as long as possible.
These shifts change how the company is communicating with consumers.
Clouse said the changes in behavior are an opportunity to “focus on value within our messaging without necessarily having to chase pricing all the way down.”
“No question that it's important that we protect affordability and that we make that relevant in the categories that we're in," Clouse said. "But I also think there's a lot of ways to frame value in different ways, right?”
A meal cooked with condensed soup may be cheaper than picking up a frozen item or ordering out. Consumers just need a reminder. Even within Campbell’s own portfolio, the company can elevate brands that have more value now, even if they may not always get the limelight.
The open question is whether the shift in behavior will begin to show up in the results of the companies that have raised prices. Campbell’s overall net sales grew 5% for the quarter ended April 30, while gross profit margins held steady around 30%. But the category-level results were more uneven. U.S. soup sales declined 11%, though the company said that was owed to comparisons with the quarter when supply chains reopened a year ago and expressed confidence that the category is seeing a longer-term resurgence as more people cook at home following the pandemic. Snacks, which includes Goldfish and Pepperidge Farm, were up 12% And while net sales increased overall, the amount of products people are buying is declining. Volumes were down 7%.
These are trends happening across the grocery store. Campbell is continuing to compete. It is leading with iconic brands, and a host of different ways to consume them. It is following that up with innovation that makes the products stand out. Then, it is driving home messaging that shows consumers how to fit the products into their lives, and even their tightening spending plans.
Campbell Soup is more than 150 years old, and has seen plenty of difficult economic environments. It is also a different business today, and will continue to evolve. At the end of the day, continued execution is what’s required.
“If it's good food, people are going to buy it, especially if it's a great value,” Clouse said.