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Apparel helps U.S. retail sales weather inflation

Overall retail sales in April rose 0.9% seasonally adjusted from March and 8.2% year-over-year, according to data released by the US Census Bureau. That compares to increases of 1.4% month-over-month and 7.3% year-over-year in March.

NRF’s retail sales calculation – which excludes car dealerships, gas stations and restaurants to focus on core retail – showed April was up 0.9% seasonally adjusted from March and up 6.4% unadjusted year over year. In March, sales rose 1% month over month and 3.9% year over year.

NRF’s numbers rose 7.1% unadjusted year-over-year on a three-month rolling average in April.

April sales rose in two-thirds of categories on a monthly and annual basis, with year-over-year gains led by online sales and clothing and grocery stores.

Clothing and clothing accessories stores rose 0.8% month-over-month seasonally adjusted and 11.2% unadjusted year-over-year.

Sporting goods stores were down 0.5% seasonally adjusted and 3.1% unadjusted year over year. Online and other non-store sales increased 2.1% month-over-month, seasonally adjusted, and 11.3% unadjusted, year-over-year.

“April retail sales demonstrate consumers’ strength and willingness to spend despite persistent inflation, supply chain constraints, market volatility and global turmoil,” said the President and CEO. NRF executive Matthew Shay.

“As consumers face higher prices, they are preserving their budget by buying smart. Retail businesses also face increased costs, such as higher energy bills and rent, as well as the cost of goods, transportation and wages. Despite already tight margins, retailers remain committed to their customers and doing everything they can to absorb these costs to keep products affordable. With the Federal Reserve already raising interest rates, the Biden administration and Congress have an opportunity to provide targeted relief to American households by lifting Chinese tariffs, passing legislation to fix the supply chain and addressing immigration reform to ease the tight labor market.

NRF Chief Economist Jack Kleinhenz added: “The April retail sales data is encouraging as it shows consumers are accepting higher prices and remain resilient. Sales benefited from Easter/Passover spending and also from tax refunds, which were delayed by pandemic-related issues at the IRS, but which are also larger than usual. High gasoline prices, rising interest rates and price pressures across the board continue to be headwinds to spending, but wage and job gains offset that with a tailwind which should bode well for moderate but steady spending growth in the future.

A difficult time for retail

Neil Saunders, chief executive of GlobalData, notes that despite pressures from rising costs of living, consumers remained resilient in April and continued to spend at a healthy pace.

“Total retail sales increased by 8.7% over the previous year. They were also up 68% and 34.3% over the same periods in 2020 and 2019, respectively. Such dramatic increases underscore the fact that the pandemic boom is not yet over, even if its impact is fading. Inflation, in the form of high prices, has contributed to increased spending, especially in areas like gasoline. With inflation removed from the mix, underlying volume growth is significantly lower and in some categories has turned negative. This suggests that the sharp increase in the cost of living has not been without consequences for consumers.

Saunders adds that what is worrying is that the impact of inflation and the fallout on retail is not immediate; it builds over time.

“Most households are still in the process of being able to cope with the price increases that have occurred so far. However, if inflation remains high for the rest of this year, the effects will become much more pronounced and we could see retail volumes deteriorate further. There are also worrying early signs that consumer confidence is starting to fade, with sales at major retailers like the automotive, home improvement and electronics chains seeing negative growth, and others like furniture practically stable over the previous year. With inflation present in all of these areas, this suggests that volumes are very negative. Of course, part of this is related to pandemic reduced demand and part is also a consequence of shortages due to supply chain issues. However, these factors do not explain all of the moderation which shows that consumer sentiment towards the economy is also weighing on purchasing decisions.

But not all sectors are faring badly: “Clothing store sales were up 11.2% year-on-year, well above the prevailing inflation rate for the category. This appears to be largely due to consumers preparing their wardrobes for spring and summer, including the anticipation of travel and vacation. It’s also partly pent up demand from March, which was a bad month for apparel.

Saunders concludes that based on the latest results, GlobalData maintains its view that we are entering more challenging times for retail.

“However, we are also of the view that the landing appears to be relatively soft, at least in terms of demand. The biggest challenge for retailers will be balancing reduced volumes with their own higher costs. This means that the most of the pain will show up in retail margins and profitability rather than revenue.

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Hazel J. Edmonds

The author Hazel J. Edmonds