Sales at US clothing retailers more than doubled in June from the month before as businesses continued to reopen following coronavirus-enforced lockdowns – although continued Covid-19 outbreaks remain a threat to recovery.
According to the US Census Bureau, sales at clothing stores surged 105.1% month-on-month – making this the fastest-growing category – but were down 23.2% year-over-year.
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Overall retail sales during the month were up 7.5% seasonally adjusted from May and up 1.1% year-over-year. That follows an 18.2% month-over-month increase in May and marks the first time government retail sales numbers have seen a year-over-year gain since February.
Retail sales have been climbing back upward after a record 14.7% drop in April, the first full month that most stores were closed.
“The number of retail segments generating positive year-on-year sale growth improved sharply from just one in April to four in May to eight in June,” says Ken Perkins, president of research firm Retail Metrics.
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He adds, however: “We would not get too excited about these numbers. The 1.1% June sales gain was buoyed by a massive amount of stimulus, which may not be present in 2H20. Furthermore, the 1.1% year-on-year increase was the fourth weakest monthly increase since mid-2010 only ahead of the previous three months.”
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By GlobalDataPerkins notes coronavirus hotspots have emerged in two of the four largest US cities this past month, with large parts of the country still experiencing rising case counts. “This cannot bode well for non-essential brick and mortar retail operations as consumers will continue to look for contactless transactions.”
National Retail Federation (NRF) chief economist Jack Kleinhenz adds: “June’s numbers show that retail spending is fuelling the economic recovery. How durable the improvement in retail spending will be is directly related to how widespread the resurgence in Covid-19 cases becomes. All eyes are on the infections that are accelerating in many parts of the country and they pose a serious threat to recovery.”
Kleinhenz notes recoveries do not proceed in a straight line and no two are alike, adding the current economy is far from normal and will require a lengthy period to absorb job losses and build up to where it was before. He adds: “Government aid for consumers and businesses has helped but additional relief is warranted to sustain the consumer spending that is the backbone of our economy.”
NRF’s calculation of retail sales – which excludes automobile dealers, gasoline stations and restaurants in order to focus on core retail – showed June was up 4.9% seasonally adjusted from May and up 9.3% unadjusted year-over-year. The difference between the Census Bureau and NRF numbers is because the categories NRF excludes were among those most affected by the shutdowns.
Two-thirds of retail categories saw month-over-month gains and just over half saw year-over-year increases. Many of the gains came at retailers that were closed during the pandemic but some face the prospect of being ordered to close again as the virus returns in some areas around the country.
Clothing and clothing accessory stores were up 105.1% month-over-month seasonally adjusted but down 24.3% unadjusted year-over-year, according to the NRF’s figures.
Sporting goods stores increased by 26.5% month-over-month seasonally adjusted and by 22.4% unadjusted year-over-year.
Online and other non-store sales, however, were down 2.4% month-over-month seasonally adjusted but up 30.2% unadjusted year-over-year.
Recovery concerns
Neil Saunders, managing director of GlobalData Retail, notes despite the lingering impact of the coronavirus, June was a month when Americans returned to the retail economy and opened their wallets.
However, a lot of the cash extracted came from government stimulus checks and enhanced unemployment payments, which is one of the reasons the sector had a good month despite extremely high unemployment and relatively weak consumer sentiment.
“The cash received by consumers, along with the reopening of physical retail, meant that many purchases postponed during the lockdown period were finally made. The materialisation of this latent demand helped the retail sector offset some of its losses – although overall sales for April, May and June were still down by 8% over the same period in 2019 showing the sector has some way to go before it completely climbs out of the trough.”
Despite good overall growth, Saunders adds the results at a segment level are far more uneven.
In essence, the retail sector is currently being propped up by three pillars. “One of them is grocery, where June sales grew by 11.4% over the prior year. Much of this is because households are eating out less – hence the 26.8% decline in foodservice sales – and are dining at home more which means they are buying more food for consumption.
“The second pillar is home improvement, where sales are up by 22% over June 2019. With people spending more time at home, the number of DIY projects undertaken has risen sharply as has the amount being spent on products for the garden.
“The final pillar is sporting goods and hobby retail which continues to benefit from the closure of gyms which is creating elevated demand for exercise equipment, bikes, and other fitness paraphernalia.”
Outside of these growth spots, other parts of physical retail are faring less well.
“Apparel stores saw sales plunge by 24.3%; after an early boost during the pandemic, electronics stores saw sales drop by 11.7%; and revenue at furnishings stores dipped by a more modest 1.9%.
“In terms of channels, this was another strong month for non-store retail where sales increased by 30.2%. Within this segment, both online and TV-shopping are doing well as many consumers retain habits picked up during the lockdown and some are still nervous about visiting physical stores. That said, remote shopping’s share of overall spending has declined since the peak of the lockdown in April even if it is elevated compared to the same period last year.
“All of these dynamics underline the fact that while consumers are spending, behaviours have shifted dramatically which is causing significant pain in the parts of the market where there has been retrenchment. Moreover, the general switch to lower margin products and to lower margin channels, like online, continues to erode the collective bottom line for retail.”
Looking ahead, Saunders notes there are now two primary concerns about sustaining the embryonic recovery.
“The first is the rise in cases of the virus which is already eroding the confidence to go out and shop and could, in some locations, lead to further damaging shutdowns of physical retail. The second, and more significant, is the looming ending of enhanced unemployment benefits. If this programme is not renewed, or an alternative put in place, many of those now opening their wallets will find they quickly empty and will shut them for a considerable time. That will stop and reverse retail growth.”
