Why US retail sales figures are surprising

Given the welter of gloomy reporting last week, a pure retail sales rise of 3.5 per cent in April may have come as something of a surprise.

However, it is important to remember that last week’s updates have been dominated by department stores: a particularly challenged segment of the retail sector, and one with heavy exposure to apparel, which has struggled thanks to unseasonal weather.

The numbers under the headlines bear witness to this trend. In April, sales at department stores fell by 2.9 per cent on a year-on-year basis; this follows a decline of 3.7 per cent last month. This is broadly in line with the averages of those stores which have provided first quarter figures during the last week or so.

Away from department stores, performance is more solid. Furniture and home furnishings continues to grow well, as does the home improvement category. These things are underpinned by a good run for the housing market, although early data from the first quarter suggests that housing activity may now be starting to slow. As we flagged last month, many aspects of the housing market are following a similar pattern that created the crash of 2008. While we do not necessarily expect a crash this time around, we do anticipate a slowdown in transactions and price rises.

Away from home, health and beauty has been another strong performer, with consumers continuing to indulge themselves with small treats, especially from beauty specialists like Ulta, Sephora, and Lush. On the negative side of the equation, electricals is performing badly – mostly thanks to a relatively weak release cycle for new technology.

Given that the economic outlook has darkened since the end of last year, it is reasonable to ask whether retail growth is now slowing. The short answer is: yes. The longer answer is: yes, but not dramatically and not in a way that is affecting all categories equally.

Consumers are now more cautious about spending than they were at the start of the year. This is something not helped by the increase in the cost of gas which, although still lower than last year, has risen consistently for the past few months. Gas now takes a larger share of retail spend than at any time in the past six months.

Ultimately, this means that while Americans are still spending they are doing so more selectively: choosing which products to buy and which retailers to visit and paying much more attention to things like price and value for money. This is the type of environment where growth is not sufficient to keep all boats afloat.

Last week we heard from those retailers which lost out because their strategies, positioning, or appeal is wrong. While their fortunes reflect a more negative mood, they are not necessarily representative of retail as a whole.

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