Retail Sales Dip Again in December: What Lies Ahead?
The surge in COVID-19 cases, reimposition of lockdowns in some states and delay in reaching a consensus over second economic-rescue measure compelled Americans to tighten their purse strings. Renewed restrictions hurt pandemic-sensitive industries such as leisure, restaurants and hospitality with the economy losing a net 140,000 jobs in the final month of 2020 for the first time since April. Incidentally, U.S. retail sales declined for a third successive month in December.
Economists had warned that once extra unemployment benefits end, consumer spending activity may drop. And this is exactly what happened. Nonetheless, the last-minute deal on a $900-billion stimulus package has given the economy a new lease of life. This second economic-rescue measure will definitely provide some financial relief to millions of households and corporates that have been struggling after the initial coronavirus-relief package started to dry up.
Moreover, President-elect Joe Biden has proposed a $1.9 trillion COVID-19 relief plan that includes additional direct payments of $1,400 to eligible Americans on top of the $600 being distributed currently. Biden has laid out plan to raise the weekly supplemental unemployment benefits to $400 from $300, and extend the same through the end of September. The plan also includes $350 billion funding to state and local governments, $50 billion toward expanding coronavirus testing and $20 billion toward a national vaccination program. Biden also seeks to increase the federal minimum wage to $15 an hour.
We believe that stimulus package and accelerated vaccination should trigger consumer demand, and pump-up spending activity in 2021.
U.S. Retail Sales Highlights
The Commerce Department stated that U.S. retail and food services sales in December fell 0.7% sequentially to $540.9 billion, following a revised reading of 1.4% decline in November. Consumers cut back spending on electronics, groceries, and food service and drinking places. Even non-store retailers took a hit. On the contrary, sales at gasoline stations and motor vehicle and parts dealers increased. Notably, consumers’ willingness to spend more on health and personal-care, home improvement and apparel was also visible.
We note that U.S. retail sales improved 2.9% year over year in the month of December 2020. This followed a year-over-year increase of 3.7% registered in the month of November last year. Although sales at Internet retailers showed a decline of 5.8% sequentially during the month under review, the metric rose roughly 19.2% on a year-over-year basis as more people opted for e-route over physical retailing amid the pandemic.
Traditionally, November and December period combined constitute the U.S. holiday season, which accounts for a sizeable chunk of yearly revenues for retailers. According to the data released by National Retail Federation (NRF), holiday retail sales, excluding automobile dealers, gasoline stations and restaurants, increased 8.3% year over year to $789.4 billion. Meanwhile, the retail trade group also highlighted that online and other non-store sales surged 23.9% to $209 billion during the festive season.
Retailers’ Holiday Scorecard
Discount retailer, Target TGT informed that comparable sales in the combined November/December period increased 17.2%. Five Below FIVE, the extreme-value retailer for tweens and teens, highlighted that net sales for the holiday Period — from Nov 1, 2020 through Jan 2, 2021 — surged 21.1%. We note that L Brands LB, a specialty retailer of women's intimate and other apparel, posted strong holiday sales results that exceeded management’s initial expectations. Comparable sales for the nine-week period ended Jan 2, 2021, increased 5%.
Again, Zumiez ZUMZ reported comparable sales increase of 1.7% for the 10-week period ended Jan 9, 2021. Meanwhile, total sales dipped 0.7% during the holiday period for this specialty retailer of apparel, footwear, accessories. Nordstrom JWN, one of the leading fashion retailers, witnessed dismal holiday sales performance. Sales declined 22% year over year for the nine-week period ended Jan 2, 2021.
Wrapping Up
Definitely challenges will be present in 2021, as strains of coronavirus pandemic will not fade out soon. But a constructive economic policy will play a vital role in steering the market in the year ahead. Clearly, stimulus checks for individuals, and mass vaccination will lend much-needed support to the economy. Economists cited that if business organizations and industries started to operate at an optimum level it could potentially ramp up hiring activity, and in turn persuade consumers to spend freely.
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