“Retail braces for the second half of the year, as cautious shoppers pay more but get less” by Daphne Howland via Retail Dive

“Retail braces for the second half of the year, as cautious shoppers pay more but get less” by Daphne Howland via Retail Dive


Dive Brief:

  • In the segments tracked by Retail Dive, retail sales in June rose 7.7% year over year, as e-commerce regained some momentum with a 20.6% rise, according to numbers released Friday by the U.S. Commerce Department.
  • The gains are undermined by record inflation of 9.1%, reported the same week by the U.S. Bureau of Labor Statistics.
  • Consumer sentiment remains near all-time lows and wariness around prices is enduring despite some relief at the gas pump, although inflation expectations may be improving, according to a report from the University of Michigan released Friday.

Dive Insight:

A nearly 8% jump in retail sales year over year would usually be good news for the industry, but this report requires a specialized lens: Higher prices mean consumers are spending more, but getting less.

That’s leading households to prioritize essentials like fuel and food over discretionary purchases, as seen during Amazon’s Prime Day sale.

“Total growth continues to run a little way below inflation which indicates, broadly, that volumes are in negative territory,” GlobalData Managing Director Neil Saunders said in emailed comments. “In simple terms, consumers did not buy more stuff in June — they bought less product but paid more for it. This is not a comfortable position as it makes consumers feel downbeat, which is one of the reasons confidence is sliding.”

June’s retail sales rise does show that consumers so far “are powering through price pressures,” Jack Kleinhenz, chief economist at the National Retail Federation, said in a statement, noting, however, that “inflation is eating away at savings built up during the pandemic and is wiping out recent income gains.”

The situation is especially challenging for consumers already struggling to make ends meet and won’t likely ease up much for them even if inflation cools, Kleinhenz also said.

The new spending pattern is a departure from last year, when the government shored up household budgets and many consumers accumulated savings while stuck at home.

“Against this backdrop the consumer was carefree. This year that dynamic has changed, and the consumer has become cautious and careful,” Saunders said. “We expect this mindset to become more embedded as the year progresses.”

The caution is leading many to spread out their back-to-school and even holiday shopping over time, and some consumers took advantage of the recent sales at several retailers during Prime Day to tackle those lists. More than a third of consumers plan to spend more on back-to-school shopping this year, though they’re quite willing to switch brands to save money or find what they’re looking for, according to research from Deloitte last week.

The NRF sees little growth from last year, expecting back-to-school spending to match last year’s record high of $37 billion, up $11 billion compared to 2019.

“Families consider back-to-school and college items as an essential category, and they are taking whatever steps they can, including cutting back on discretionary spending, shopping sales and buying store- or off-brand items, in order to purchase what they need for the upcoming school year,” NRF CEO Matthew Shay said in a statement.

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