Retail sales fell 1.9% in December, the Commerce Department reported Friday, reflecting a slowdown during an otherwise robust holiday shopping season that began earlier in the year for many consumers. .
It was the first decline after four consecutive months of rising sales, although November’s gain slowed from October due to the lengthening of the holiday shopping season caused by fears of supply shortages. products and price increases. Total sales from October to December were up 17.1% from a year earlier, according to the report. December sales were up 16.9% from 2020.
Beth Ann Bovino, chief U.S. economist at S&P Global, said while there was to be an “overall shock” to a lower number, the broader retail sales picture had been solid over the past few months. last months.
“It’s not a sign of consumer weakness,” said Bovino, who had forecast a drop. “Given that households have relatively strong balance sheets with high levels of savings and a strong labor market with rising wages, it appears that consumers are not necessarily closing their wallets. They take a short break.
The retail sales report provides a data point on consumer sentiment after a report this week showed inflation at the end of 2021 hit a 40-year high. Prices rose as new variants of the coronavirus exacerbated supply chain issues and strong consumer demand for goods. At the same time, the Omicron wave caused widespread staff shortages and may have played a role in turning some consumers away from stores and holiday gatherings.
Ms Bovino said she did not believe inflation played a role in the overall decline in sales, but worries about rising prices were likely to emerge in the first quarter of this year.
Understanding the supply chain crisis
Morgan Stanley economists had forecast retail sales to rise 0.4% in December. Even though inflation overtook the coronavirus as the No. 1 concern for consumers polled by Morgan Stanley in November, it “had no impact on spending plans,” economists said in a note the week last.
Instead, the holiday shopping season appeared to be breaking records, and lower-income consumers appeared to be operating with relatively better purchasing power, the economists wrote. At the same time, they anticipated that the Omicron wave would drive more spending on goods rather than services.
The pandemic has continued to shape consumer habits in the United States.
Fewer people have been shopping in stores this holiday season, even though the Omicron variant only became a significant threat in December. Foot traffic in the United States between Nov. 21 and Jan. 1 was down 19.5% from 2019, according to Sensormatic Solutions. It was a slight improvement from the depths of the pandemic in 2020, when foot traffic over the same period was down 33.1% from 2019, but still a significant change.
As retailers grapple with inflation and supply chain issues, this has given larger U.S. retailers an added advantage. They had already benefited during the pandemic by being able to stay open while others closed, the variety of goods they carry, and through initiatives like curbside delivery.
“We’re talking about Walmarts and Targets and Costcos, the big players,” said Mickey Chadha, retail analyst at Moody’s Investors Service. “They have leased their own ships and they are importing products. They have a lot more power with suppliers to get priority. And they also planned ahead.
At the same time, Chadha said, they haven’t had to raise prices as much as smaller retailers and are likely to benefit as low-income consumers seek value to stretch their dollars.
“They’re taking market share because they have the ability to lower their prices and absorb that margin impact much better than some of the smaller, weaker retailers,” he said.
Costco, for example, said on an earnings call in December that it believed it was successfully managing the effects of inflation through its relative purchasing power and supplier relationships. That often meant that Costco and its suppliers each took fewer price markups, Richard Galanti, the company’s chief financial officer, said on the call.
“We’ve always said we want to be the last to raise the price and the first to lower the price, recognizing that there’s a limit to what you can do with those cost increases,” Mr. Galanti.
How the Supply Chain Crisis Unfolded
The pandemic triggered the problem. The highly complex and interconnected global supply chain is in upheaval. Much of the crisis can be traced to the Covid-19 outbreak, which triggered an economic slowdown, mass layoffs and a halt in production. Here’s what happened next:
Costco also acknowledged that while it was dealing with inevitable supply chain issues, including delayed container arrivals on the West Coast, it felt “pretty good to keep in stock.”
Many other retailers said supply chain issues reduced revenue last year as pandemic-related factory closures in Vietnam and shipping delays kept goods off shelves and warehouses. Americans.
“Holidays were weaker than expected as units that were due to arrive in December did not clear ports within the timeframes we had anticipated,” Fran Horowitz, Abercrombie & Fitch’s chief executive, said on Tuesday. a conference. “This was beyond our control and resulted in lost sales during the peak sales period. Beyond these delayed units, we have also experienced new Covid-related restrictions around the world. »
Still, some retail executives said they’d rather have a supply problem than a demand problem, especially given the ups and downs in consumer preferences over the past 18 months. And it’s not yet clear whether the price increases are dampening demand given the quarterly performance.
Mr Chadha said retail sales were strong for 2021 overall, although he expected the situation to change in 2022 as supply chain issues and rising prices became more important factors.
S&P’s Ms. Bovino said she expects more selective buying to take hold later this year, as savings accounts begin to deplete and consumers “remember what the price”.
January retail sales could also be affected by reduced opening hours and store closures, as the Omicron wave causes widespread staff shortages in many sectors.