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Rising prices are shaping the American economy in early 2022.
Following the 40-year high in consumer prices reported on Tuesday, that continued to be the theme as the federal government released new monthly data in key areas over the latter part of the week.
The new data showed that total retail sales ticked up in March, while prices for imports and wholesalers also continued to rise.
Here’s a closer look:
Monthly retail sales were up .5% month-over-month in March, according to the US Census Bureau. The total sales were up 6.9% year-over-year.
The Bureau also posted a revision to its data for February, now stating the month saw an increase of .8% in retail sales over January, as opposed to the previous number of .3%. The revised number means February had growth of 18.2% over the same month in 2021.
As with the Consumer Price Index released earlier this week, rising gas and food prices drove the increase in this area. Gas station sales had a particularly notable spike, up 37% year-over-year. This came as the cost of fuel continues to rise amid record inflation and the Russian invasion of Ukraine. Data released by the government is not adjusted for inflation.
Putting the focus on consumer goods, the National Retail Federation completed a calculation of retail sales totals that excludes gasoline and food services. Its measure showed that these "core" retail sales were unchanged from February, and up 4% year-over-year.
Per the Census Bureau, the biggest month-over-month increases were in general merchandise stores (5.4%), electronics and appliances (3.3%), sporting goods and hobby (3.3%) and clothing stores (2.6%).
Nonstore retailers, which includes purchases made online, were down 6.4% from the prior month in March, according to the Census Bureau, but the total was up 1.1% year-over-year.
“March retail sales show that consumers have maintained their ability to spend in the face of record-level inflation, supply chain issues and geopolitical unrest,” National Retail Federation CEO Matthew Shay said in a statement. “Consumers are adapting and shopping smarter for themselves and their families.
US import price index data (Courtesy of US Bureau of Labor Statistics)
Prices for imports were up 2.6% in March, which was the largest monthly increase since April 2011, according to the US Bureau of Labor Statistics.
This followed a 1.6% increase in February and a 2% rise in January.
Consumer goods followed the overall trend pattern. Data showed the import prices in the category had an uptick of 3% year-over-year. This was the largest rise since a 3.4% year-over-year increase reported in December 2011.
Prices for exports were up 4.5% month-over-month in March. Put together with increases in the first two months of the year, the BLS is reporting the largest rises in export prices since January 1989.
Prices for exports of consumer goods, meanwhile, were not in line with the overall trend, as it did not rise as dramatically. There was an increase of .8% in this category, according to the BLS.
Producer Price Index one-month changes (Chart via BLS)
The Producer Price Index, which measures the prices paid by suppliers and wholesalers before goods reach retail, also posted new highs in March.
The month-over-month increase of 1.4% was higher than the previous two months, the BLS reported Wednesday.
On a year-over-year basis, the BLS said there was an increase in the PPI of 11.2%. This is the highest increase since the government started releasing the measure in 2010.
The PPI's metric of prices for goods that leaves aside food, energy and trade services rose 0.9% in March. This was largest month-over-month increase of this measure since a 1% increase in January 2021.
Taken together, the measures show that everyone is paying more right now, whether they’re consuming, supplying or transporting goods. It’s why we’re not only seeing the price of goods on digital shelves go up, but also rare moves like a 5% surcharge from Amazon for fulfillment services.
Businesses must control costs as they bring in goods, while staying in line with consumer expectations as they look to sell them. It’s a fine line. Everyone is walking it.
Trending in Economy
The opening of a new Market Fulfillment Center highlights Walmart's plan to build a local, automated logistics network.
Walmart may never build a fulfillment operation with a footprint that rivals the sprawling network of Amazon, but it is still in position to build a similar engine of business growth from the bowels of the supply chain. That’s because the world’s largest retailer has a head start in one key area that the ecommerce leader currently lacks.
As executives at Walmart are known to repeat often, 90% of the U.S. population lives within 10 miles of a Walmart store. These brick-and-mortar behemoths provide built-in proximity that can not only provide convenience for consumers who are looking to easily shop in person, but also to the retailer as it seeks to ship digital orders out.
As Walmart emerges from two years of building ecommerce capabilities during the pandemic, it is now taking steps to make its digital business a cornerstone of future growth, and profitability.
Those plans include building new facilities throughout the supply chain, but the retailer is continuing to keep the store at the center of ecommerce.
The latest example arrived this week. Walmart said it is opening a new store-based fulfillment center in its hometown of Bentonville, Arkansas.
From Walmart’s news release:
The Market Fulfillment Center (MFC) is built within the store and is powered by a proprietary storage and retrieval system – named Alphabot. Walmart believes fulfillment through digitization and connecting its store and supply chain assets end to end will transform fulfillment. And along with it, customer satisfaction and associate opportunity.
While this is only Walmart’s second MFC, it points at the logistics model that the retailer is building. Rather than massive standalone fulfillment centers in each locality, Walmart is creating a network that includes stores, distribution centers and a fewer number of strategically located (and increasingly automated) fulfillment centers.
Walmart already has big box stores that resemble large warehouse facilities. Now, it is putting them to work as supply chain nodes. This makes sense, since Walmart’s sizable ecommerce growth is being driven by pickup and delivery. Those two fulfillment options are largely local, and originate at stores. So it's a massive strategic advantage to be located with 10 miles of the bulk of the U.S. population. Additionally, Walmart has a sizable grocery business, so it benefits from being able to colocate items within a store, rather than splitting inventory between in-store and ecommerce.
While combining a store and fulfillment center is a matter of space and real estate, Walmart said that technology is critical to making it all work. The Alphabot system detailed above is a key part of the retailer’s recently-revealed plans to have 65% of stores serviced by automation by 2026.
Alphabot is key to automating fulfillment. (Courtesy photo)
The shift to in-store fulfillment is designed to increase efficiency and help Walmart better serve customers. The company said that MFCs will help Walmart deliver more orders in a day, and increase accuracy. In the end, it will also increase delivery speed. As it continues to add fulfillment centers, the retailer has said that it can reach 95% of the U.S. population with next- or two-day shipping. By adding stores into the mix, it can offer same-day delivery to 80% of the U.S. population.
But for Walmart, the investment in automation is also an opportunity to draw on a new engine of growth. The retailer has said that unit cost averages could improve by 20% as a result of the automation initiatives it is implementing, and store-based fulfillment model.
While the upfront investment is likely significant, it is making use of existing assets. In the end, building now can help improve margins going forward. On the company’s recent earnings call, CFO John David Rainey outlined the company’s thinking on the ability of supply chain to increase returns for investors:
The third building block of the model includes improving returns by scaling proven high-return investments in our supply chain that drive operating leverage and improve incremental margins. We're investing capital to optimize our distribution and fulfillment nodes with automation that we expect will drive a significant improvement in unit economics in the coming years. Our capital structure and cash flow generation are an advantage, and we're allocating capital responsibly with a bias towards increasing returns.
While Walmart’s fulfillment operation may look different than Amazon’s, the retailer appears to have learned the lesson that an investment in infrastructure can transform the supply chain from a cost center into a profit driver.