January and February are notoriously slower months for retail sales as consumers tend to begin the New Year with a fresh mindset and the goal of paying off Holiday shopping. This January is no exception, but sales seem to be off to an even slower start than normal.
January retail sales declined by .09% which was the largest drop in two years and worse than economists had expected. February declined another .22% based on current data but was still up over last year. This January, weather, fires, and economic uncertainty all played a role but in February it appears to be more related to an abrupt pull back by consumers on spending due to uncertainty of what the future holds and fears of a recession.
In February consumer confidence declined to the lowest levels since June and lower than prior estimates. Inflation, impending tariffs, and the cost of essentials such as food, heat, and electric, have driven declines across the board. Items like sporting goods, toys, clothing, footwear, furniture autos and even building materials have softened. The largest declines were in building, furniture, and home furnishings. The pull back has mainly occurred in Brick and Mortar, but even online stores are starting to feel the hit as growth has slowed and online sales were only up .46%. Spending needs to be watched as it is one of the key economic indicators.
Retailers are going to need to remain flexible and demonstrate the ability to adapt quickly to the changing consumer mindset and spending habits of frugality. They will need to offer products that are more affordable or entice purchases with deep discounts. They will also need to be prepared to remain flexible due to the shifting of the consumers purchasing mindset, especially as the tariffs begin to hit. These tariffs are projected to impact some products or product categories much harder than others. The largest projected price increases appear to be in electronics and items involving aluminum and steel such as autos and household appliances.
During times of economic uncertainty or inflationary periods, consumers have flooded Walmart, the largest U.S. retailer, looking for deals and taking advantage of their lower prices. However, Walmart has warned that its sales and profits may slow this year, which is a red flag that the rest of the retail industry must take note of. Due to its size, Walmart has had and will continue to have much more leverage when negotiating pricing than smaller businesses. They still acknowledged that there is a lot of uncertainty when it comes to the consumer mindset and how it will impact their spending habits and the choices, they are making on what will be purchased. Many consumers are facing the fact that essentials are consuming their budget, so they are cutting back on non-essentials. Many more are uncertain about the state of the economy and where it is headed and are making the choice to save not spend and others have faced or fear they may be facing job losses.
Online stores will most likely continue to fare better in the current situation since many times they can offer lower prices since they do not have additional expenses to manage a location and can reach a much wider audience. This makes it harder for Brick-and-Mortar businesses to compete. Ecommerce has already caused significant numbers of store closures and forced many retailers to downsize their physical footprint leaving empty retail real estate throughout the country. Numerous retailers have filed for bankruptcy in the past few years and many more are on life support. It is unclear if this trend will continues in the current economic environment.
