How realistic is an 8.1 percent annual U.S. retail sales growth forecast for 2021?
Retail forecasting firm Customer Growth Partners (CGP) last week projected that America’s resilient shoppers will drive annual retail sales to a record $4.26 trillion, or 8.1 percent year-over-year growth.
Despite stubborn coronavirus pandemic headwinds, the projection could come to fruition, potentially fueled by pent-up demand and federal assistance from stimulus programs.
“Digital channels will drive some 56 percent of the aggregate increase in 2021 sales, while Big Box stores [such as Costco, Dick’s Sports, Home Depot and Target] will see soft footfall growth balanced by strong online growth, yielding robust net traffic growth, and even some increased in-store traffic,” Craig Johnson, president of CGP, said. “Average tickets and net traffic will each rise by 3 percent to 5 percent, generating the 8.1 percent sales increase.”
Johnson also said that home and hardlines categories will thrive in 2021, as consumers shift their focus from spending in apparel, projected to be down 8.7 percent for the year, to their not-so-new work-from-home lifestyles. But whether early growth in 2021 can be sustained in the second half will depend largely on the pandemic and job creation, he added.
On Thursday, the Labor Department said that first-time claims for unemployment benefits last week hit 833,000, higher than the 773,000 economists expected. Wells Fargo economist Sarah House said last week’s tally is a “clear signal that the labor market recovery is still struggling to regain traction.”
House expects that declining virus cases, which should reverse social restrictions, and warmer weather should ignite the jobs recovery. She also noted that the fiscal package passed in late December is starting to “make its way into the economy,” reflected in Wednesday’s January retail sales report.
Overall retail sales in January were up 5.3 percent from December, and up 7.4 percent from year-ago figures, the Census Bureau reported. Department store sales were down 3 percent from year-ago results, while apparel and accessories stores were up 5 percent.
Patrick McKeever, president and founder of The Daily on Retail, see pockets of strength at retail, noting that even some mall-based stores are performing well. “[R]etail is doing pretty well right now [as many] retailers have made a rapid pivot,” he said during a Retail Marketing Society webinar Wednesday, “really a transformation in reaction to the pandemic.” New services such as curbside pickup and same-day delivery are helping, he said.
“Holiday 2020 was much better than expected. Holiday sales increased in November and December by more than 8 percent, which was a heck of a lot better than anyone expected,” McKeever added. “A big part of the growth was a spending shift from experiences like travel and eating out into material things like gifts, for example.”
With retail sales up 5.3 percent in January, McKeever said it was “reasonable” that an 8.1 percent growth projection “could be done.” Of course, there are caveats. One could be a reversal of the shift to material goods back to experiences and travel in the second half of 2021.
“Not so fast,” cautioned Walter Loeb, a former Morgan Stanley retail analyst and now retail consultant, who had some caveats of his own and was more cautious about retail sales growth in the back half of the year.
He noted that retail has easy comparisons for the first half of the year when many were temporarily closed in 2020. That shifts when retailers begin to anniversary higher retail numbers as stores began to reopen last year, and that the higher fourth-quarter holiday comps of 2020 could be hard to beat in 2021.
“I can see up 15 percent for the first quarter, then up 10 percent for the second, and up 8 percent for the third. But how do you predict the fourth quarter? What’s that going to be like?” Loeb said, adding there are still many unknowns to be considered, including the pandemic and how long it will take to get most people vaccinated.
Plus, winter storms roiling the nation and upending living conditions could cast a pall over retail for a good portion of the year, he added.
While power on Friday was restored for portions of Texas, water and food shortages remained a problem for the southern state that was hard hit by historic weather. Other southern states, such as Jackson, Miss. and Memphis, Tenn., saw their water supply cut off by the winter weather conditions. It wasn’t immediately clear how long it would take to resolve the power grid issue and other related shortage problems or when businesses and living conditions could be restored.
“This is going to hurt February and it’s going to hurt March. And we don’t know how this will impact other sectors that involve production in the hit areas. So now we have snowstorms, ice storms and the pandemic all thrown into the mix.How do you make an estimate when this happens?” Loeb said.
