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Culprits Emerge in July’s Retail Sales Slowdown

Amazon Prime Day and persistent shipping and supply-chain bottlenecks might be the culprits behind July’s retail sales slowdown.

In the U.S., retail sales dipped 1.1 percent last month from June, but still came in 15.8 percent year over year, according to the U.S. Census Bureau’s seasonally adjusted data. What’s more, the decline was more pronounced at apparel and accessories stores, where July sales were 3 percent lower versus June. Last month’s department store sales were essentially flat from June, though up 24 percent from the same period last year. Non-store retailers, which include e-commerce sales, fell 3 percent from June, but were up 6 percent from July 2020.

However, Walmart‘s second-quarter report showed consumers have returned to its stores, although the retailer’s digital sales decelerated for the three months ended July 31 versus 2020. A favorite back-to-school destination, the federal government’s Child Tax Credit Program, which paid families starting July 15, likely helped Walmart buck the retail sales trend.

This year, July also didn’t get the usual lift from Amazon Prime Day, which moved to June from its traditional spot in the seventh month on the calendar. During last year’s pandemic disruption, however, Amazon punted the shopping extravaganza into October, a move that effectively kicked off the year-end holiday retail season.

What’s more, the National Retail Federation (NRF) fingered supply-chain disruptions as a likely factor in July’s retail numbers, while also pointing to the effect of vaccinated consumers spending money on new freedoms like dining out and travel instead of shopping for goods.

“Despite this monthly dip, the economy has rebounded quite well and is more than just on the mend,” said NRF chief economist Jack Kleinhenz. “The consumer has continued to be resilient and recent price increases brought on by constraints in the supply chain have not dampened the robust demand seen during the past year. If retailers could find more inventory, they could sell it. Going forward, consumers are a bit fearful again as we approach another possible wave of Covid-19 infections, but they’ve learned to live with the virus and shopping continues.”

While Kleinhenz expects solid July back-to-school spending will spill over into August, other headwinds could present challenges. In fact, Wells Fargo Securities economists Tim Quinlan and Shannon Seery question if the “height of the spending growth is likely past us with early signs suggesting bigger headwinds for spending in August,” they wrote in a report.

For now, retail sales remain 17.2 percent ahead of its pre-pandemic level in January 2020, they added.

“Coming off the second biggest increase in quarterly consumer spending since the 1950s, the combination of a resurgence in Covid and higher inflation have eroded consumer sentiment somewhat. That is not to say that these factors alone are to blame for holding up retail sales. Real durable goods spending declined in all three months of the second quarter,” they wrote. “This first look at July suggests that the third quarter is not starting off much differently in that regard, as retail sales tends to capture more goods spending than it does services. Our forecast is not terribly optimistic about the outlook for durable goods spending in the second half of this year.”

With the resurgence of Covid, there’s a chance that discretionary spending gains could become “more tepid,” Quinlan and Seery said. What’s more, “high-frequency data on restaurant visits and travel have plateaued in August as the Delta variant has become more prevalent in the U.S.,” they added.

They also noted the divergence between the University of Michigan’s Consumer Sentiment Index for August, which as of Friday reached its lowest point since 2011, and the Conference Board’s Consumer Confidence Index, which in July hit a post-pandemic apex. The Conference Board will report its August reading on Tuesday.

Spending is in for another shock when supplemental unemployment benefits disappear, in addition to the end of stimulus checks, widely seen as propping up retail sales.

Economists expected a shift in spending from goods to services, but other headwinds now suggest that spending growth could be in the past.

U.S. retail sales slipped in July as consumers shifted their spending from goods to services.

In more positive news, new data suggests mall traffic is on the upswing, perhaps a reaction to nearly 18 months of consumer isolation. According to Placer.ai, open-air malls performed best in July, with monthly visits up 2.1 percent over 2019. Indoor malls saw the metric dip 0.1 percent. However, the location data research firm says traffic differences between indoor and outdoor shopping centers are starting to narrow as the nation makes progress, albeit halting, with the Covid-19 pandemic. If the country can get a handle on the Delta variant, indoor malls are likely to see an influx of traffic heading into the chillier winter months, Placer said.

Geography seems to be playing a role in foot traffic recovery. Comparing 2021 and 2019 data, traffic to Minnesota’s Mall of America dropped 9.8 percent, while visits to Pennsylvania’s King of Prussia Mall shrank just 3.4 percent. And footfall to the Destiny USA Mall in Syracuse, N.Y. tumbled a steep 17.6 percent, data shows.

What’s more, though traffic trends revealed that footfall peaks migrated from evening hours into mid-afternoon, likely reflecting the effects of pandemic work-from-home routines, that phenomenon seems to be reversing course yet again as offices reopen, helping to normalize mall-based foot traffic.

Still, Placer’s footfall data correlates with nationwide workplace reopenings, which many companies have postponed amid surging Delta-fueled infections. Prior to Covid, 6.5 percent of mall visitors arrived at shopping center from work, a figure that stood at just 2.8 percent in June. However, the “fact that the rate of customers heading to malls from home has already dropped back down to around 50 percent—approximately what it was pre-COVID—indicates that other factors are at play,” Placer said.

The findings could signal the mall’s evolution from a place for commerce to more of a community hub home to fitness centers, physician’s practices and even co-working spaces, meaning consumers have new reasons to drop in as opposed to running a quick errand after work.

What’s more, Placer found that many consumers who hit the pause button on comparison shopping during the pandemic in favor of keeping their business local are willing to travel farther again to get the best deals now that some restrictions have eased.

“With a reduction in social distancing measures, shopping centers need to offer the best and most diverse shopping experience to capture visits in this increasingly competitive environment,” Placer said. “As more malls invest in improving and diversifying their offerings, malls that don’t modernize their offerings may get left behind.”

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