This is a continuation of my blog on tracking holiday retail revenue together with detailed changes in retail sales by sector for December. We continue to see inventory growth that is not a major concern today but tomorrow may bring a different response. The holiday retail revenue results were a mixed bag as consumers continue to be cautious or is it a lack of disposable income.
Year end 2013 sales data is arriving from the commerce department. Surprise we had downward adjustment of October and November sales data and early returns of the December data reveals a mixed bag. Tuesday’s retail-sales report also took some of the shine off prior figures. Retail sales were revised down to a 0.5% increase in October and a 0.4% gain in November. Solid economic growth with these types of gains is going to be very difficult.
To set the stage for this blog I must relay a conversation I could not help overhearing at the BC Club while writing this blog after my luncheon meeting. A person is meeting with his financial advisor. They are a salesperson of spirits and earns a base slightly over $100 thousand. His company has not paid bonuses in the last few years and this past year was no exception. Business remains soft. His credit card balances are running high. He is having trouble keeping up with the repair bills on his car, tuition for his young children is eating away at disposable income, and he struggles to put aside a few hundred a month to build a small cash cushion. If this is a typical Middle American no wonder we do not have GDP growth and consumer confidence continues to be cautious shall we say.
Back to the economic data.
As we all have read the US economy is continuing to expand at a modest pace. Inventories continue to build and consumers are gently putting their dollars to work. Employment data continues to send mixed messages further confusing the situation.
The Commerce Department said on Tuesday inventories increased 0.4 percent after rising 0.8 percent in October. Some are starting to put a spin on the inventory build, that it is planned. Inventory build prior to the holiday season is expected but builds in November are not. Holiday goods go on sale in October nowadays.
The experts believe the unusually bad weather in December impaired Auto and other sales. It was very cold for sure and one report had winter coats sold out. It takes a lot of coats to equal one SUV.
The commerce department released the following data regarding annual sales volume.
The annual revenue grafted above is in line with the sales data for the holiday season. Department stores continue to suffer as consumers continue to buy online. It would appear based upon the data that we can expect some margin erosion as brick and motor retailers chased sales. “In response, several retailers, most notably Wal-Mart Stores Inc., have been aggressive with their low prices and steep discounts throughout the holiday season as they fight for shoppers. But with consumer spending still weak, competing with lower prices is denting profits……We didn’t see anything like happy days are here again and free spending,” said Michael Egeck, president and chief executive of outerwear and apparel retailer Eddie Bauer Holdings Inc., which has more than 300 U.S. stores. Shoppers, he said, were a lot more discerning about splurging for winter wear, inquiring about warranties and construction.” Per WSJ
The trend of consumers looking on the interest first resulting in limited trips to Malls is reflected in the continued decrease in foot traffic. The graph below via the WSJ and Shopper Trak reveals the story best.
Online sales more than doubled the rate of brick- and-motor sales this past holiday season. This sea change is impacting impulse buying as consumers use the internet to get the best deals on the merchandise they want.
Personally, I use the internet to procure my golf equipment at substantially less money than the custom fitter charges or even the big golf stores. The percentage difference is substantial.
Best Buy released their holiday results and they follow the overall trend in the electronics sector for brick-and-motor stores. Revenue was down almost 1% and the discounts reduced operating margins for the period. The good news is Best Buys online sales were up substantially.
Upon delving deeper into the December sales data from the commerce department a number of categories had one month declining sales over November, and others had strong increases. Some of the categories make a lot of sense. Holiday spending in December on clothes, internet sales, and restaurants should be expected. A decline in electronics is two sided. While the actual dollars are down, it leaves me wondering if the number of units sold is up substantially. You can now buy a tablet for a few hundred or less, TV prices continue their downward movement as do most technology products. Spending on health continues to erode disposable spending as do gasoline and food.
Major brick and motor stores are forecasting lower sales and profits. Traffic into these locations is declining. So much for the power walks in the mall in the winter. Price wars do not stop at the brick and motor stores as the consumer demands sharp pricing from everyone. Expect downward pressure on margins and most likely profits. This does not mean losses or red ink for most. Those selling too low to low middle market customers will feel the pinch more than those catering to the wealthy for sure. We have all seen the news on Family Dollar and a local retailer Building #19. Both serve / served the lower end of the market.
In closing, as we drove by the auto dealers my eyes thought they saw an abundance of inventory. With December sales down $1.4 billion my eyes did not lie.