How the US retail industry is in crisis – and yet not…

Strong sales data just released suggests all is well in the US retail industry – but the numbers overshadow a sector otherwise in crisis.

In a week peppered with the negative headlines of tumbling department store results, the sales numbers for April serve as a timely reminder that not all is gloomy in the world of retail.

Pure retail – which excludes foodservice, automotive, and petrol – recorded year-over-year growth of 3 per cent in April – a respectable uplift that is only slightly below the average rate of growth over the past year. There is no sign that retail spending is slowing down to any significant degree.

Such a statement might, at first glance, appear to contradict the tumult of chatter suggesting retail is in crisis. In actuality, both are correct.

Retail is in a state of flux and is facing many challenges, but the source of these difficulties is not, primarily, a function of consumers spending less. Rather, they are the consequence of a change in where consumers spend that money. As the distribution shifts, it is causing significant pain for the losers and is forcing all retailers to reassess their routes to market.

It is positive that the root of the problems is not a slowdown in spending: it underlines the fact that there are gains to be made – but only for those retailers savvy enough to adapt and respond.

Some of the shifts in play are evident in the detail of this month’s sales numbers. Department store sales, as would be expected, fell by 1.2 per cent in April. Comparatively, non-store retailers saw sales increase by 9.4 per cent. Electricals continues to underperform with sales at specialist retailers virtually flat at -0.1 per cent.

April was a slightly better month for clothing retailers, largely thanks to a strong performance from the off-price sector and some premium brands. Sales here grew by modest 1.7 per cent. The same could not be said of sports retailers, whose collective sales fell by 3.3 per cent. Continued discounting from the rash of store closures and a waning interest in athleisure both contributed to the decline.

Despite a solid retail performance, many retailers will argue that growth levels are simply too low to benefit and sustain all retailers. There is some truth in this. Growth levels remain lower than they were before the financial crisis. However, this is nothing new and it is unlikely we will ever get back to the seemingly halcyon days of 5 per cent growth that were common before 2008.

Given this, it is important to consider what the future trajectory of growth looks like. In our view, it is reasonable and steady. As much as we do see some forward pressures on household finances, we also see positives from continued low gas prices, relatively full employment, and some modest gains in wages.

This steadiness in growth is a good thing – if only because a slowdown in spending, coupled with all the structural change occurring in retail, would produce a very real crisis.


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