16 November 2022
US retail sales jump 1.3% in October amid early holiday deals
The gains in retail sales outpaced inflation.
The gains in retail sales outpaced inflation.
US retail sales continued to show resilience in the face of inflation and moves to cool demand in October.
Numbers released by the US Commerce Department on Wednesday tell the story:
Overall retail sales grew 1.3% on a monthly basis from September, totalling $694.5 billion. That’s a big gain over last month’s report, when sales for September were unchanged from August.
US retail sales, Oct. 2021-Oct. 2022. (Courtesy of FRED)
On an annual basis, retail sales were up 8.3%. That outpaces the October inflation rate of 7.7%. That's significant, as retail sales are not adjusted for inflation.
Core retail sales, as measured by the National Retail Federation to exclude automobile dealers, gasoline stations and restaurants, showed October sales were up 0.7% from September and up 6.5% unadjusted year over year
Nonstore retailers, which include ecommerce, posted a 1.2% increase for the month, while growing 11.5% year-over-year.
US nonstore retail sales, Oct. 2021-Oct. 2022. (Courtesy of FRED)
Other core categories showing change included furniture and home goods (+1.1% monthly), health and personal care stores (+0.5% monthly). Meanwhile, electronics and sporting goods/hobbies each declined 0.3%. Apparel showed no change from the prior month.
Grocery stores (+1.4% monthly) and gas stations (+4.1%) continue to see gains in spending amid a period of 40-year-high inflation that is driving up food and fuel prices.
The results covered a month when retailers sought to kick off the holiday shopping season. October brought a host of early holiday deal events from Amazon, Walmart, Target and Wayfair, as they sought to move overstocked inventory and meet demand from consumers seeking to get a jumpstart on their lists.
“October’s performance is a strong foothold as we go into the holiday season,” said NRF Chief Economist Jack Kleinhenz, in a statement. “Spending has gradually slowed but remains solid...Early holiday deals that enticed customers appear to underly the October numbers and more promotions will be seen in November and December, which are historically the big holiday shopping months.”
The data also comes as the job market continues to remain historically tight, bolstering the availability of steady income to make purchases.
“In October we saw the strength in the labor market continue to support consumer purchasing power,” said Michelle Meyer, US chief economist at the Mastercard Economics Institute, in a statement. “Coupled with heavy online promotions, consumers got a head start on their holiday shopping, fueling another strong month of retail sales.”
The report will undoubtedly lift spirits 10 days before the heart of the holiday shopping season is set to arrive with Black Friday. It comes on a week that Walmart,Lowe's and Home Depot each reported better than expected results, for the most recently-completed quarter as well.
However, high inflation and the Federal Reserve's moves to curtail demand through four interest rate hikes are leading many retailers to temper forecasts for peak season.
Amazon's recent warning of reduced sales for the quarter cast a pall over investors, if not retail as a whole. Likewise, Walmart on Tuesday forecast tepid net sales growth for the fourth quarter of 3%, which would significantly trail growth of 8.2% for the quarter running August-October.
Reports of a consumer pullback are also starting to surface. On Wednesday, Target reported comparable store sales growth of 2.7%, which came in far under its forecasts. Nearly all of the slowdown was driven by our discretionary categories, apparel, home and hardlines, executives said. The retailer, which has a mix that is tilted more toward general merchandise than Walmart’s grocery-heavy baskets, also said it is taking a more conservative outlook ahead of the holiday season.
"In the latter weeks of the quarter, sales and profit trends softened meaningfully, with guests' shopping behavior increasingly impacted by inflation, rising interest rates and economic uncertainty,” said CEO Brian Cornell, in a statement. “This resulted in a third quarter profit performance well below our expectations.”
A tough season seems likely, yet the latest retail sales data offers the latest sign that spending may continue to hold up, as it mostly has all year.
MasterCard SpendingPulse released a forecast this week indicating that Black Friday is set to see a 15% increase in retail sales over last year. The season is expected to be even more promotional than usual amid inflation, yet MasterCard expects a more concerted return to in-person shopping to bring gains. In particular, department stores are expected to see a 25% year-over-year increase in sales across physical and digital channels.
“Expect Black Friday shopping to be in full force across channels this year,” said Steve Sadove, a senior advisor for Mastercard and former CEO of Saks Incorporated. “While retailers have already been heavily discounting this season, consumers and retailers are likely holding out for some special offers to land on the biggest promotional day of the year.”
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.