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Are Clothing Sales in Trouble?

Clothes-shopping consumers pushed apparel sales up in April, according to Mastercard SpendingPulse data, but inflation is doing its best to crash the retail party.

Mastercard said that April’s clothing sales rose 10.8 percent year-over-year, while department stores were up 15.7 percent year-over-year, aligning with Afterpay data showing that sales in the channel during its bi-annual Afterpay Day “holiday” surged 261 percent from autumn. However, Mastercard’s credit card intel suggests the growth rates for apparel and department stores “have started to soften from the peaks earlier this year.”

Sales in furniture and furnishing rose 3.8 percent year-over-year for the seventh consecutive month of positive growth. “While the super-hot housing market is starting to show signs of cooling, consumers continue investing in their homes and feathering their nests for seasons to come,” Mastercard said.

Total unadjusted retail sales excluding automobiles rose 7.2 percent from the year before as in-store sales perked up 10.0 percent, while Afterpay’s March data found physical-store sales leapt 91 percent, “nearly doubling from August.” The opposite is true for digital sales, according to Mastercard, which documented a 1.8 percent year-on-year decline in e-commerce, which is still 92 percent above where it was in April 2019. Store sales were strongest in California, New York, Florida, Nevada and Illinois, Mastercard said.

“Whether for a family barbeque, returning to the office or senior prom, it seems like everyone is out shopping for something,” said Steve Sadove, senior advisor for Mastercard and former Saks Inc. chairman and CEO.

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Other indicators suggest inflation is making consumers think twice about spending.

First-time U.S. unemployment benefits claims for the week ended April 30 rose by 19,000 to 200,000,  the Department of Labor reported Thursday, for the biggest first-time filer uptick since mid-February and biggest weekly bump in claims since July last year. Meanwhile, ADP’s April National Employment Report showed private sector employment rose by a seasonally adjusted 247,000 from March to April, a sharp slowdown from 479,000 in March, 601,000 in February, and 512,000 in January.

Also on Thursday, the Bureau of Labor Statistics reported that nonfarm productivity, which measures output against hours worked, fell 7.5 percent from January through March for the biggest decline since 1947’s third quarter. Unit labor costs—measuring salary and benefits per unit of output—jumped 11.6 percent for the biggest gain in nearly four decades.

“The trend in unit labor costs is running more than double the Fed’s inflation goal of 2 percent, signaling inflation pressures persist not only outside the U.S. with elevated commodity prices and still-knotted supply chains, but from within as the U.S. labor market remains exceptionally tight,” Wells Fargo economist Sarah House said.

House said productivity offers the least painful way for an economy to escape inflation, but “it won’t be coming to the rescue” anytime soon.

And while the U.S. added 428,000 jobs last month, the Labor Department said Friday, some economists believe new job growth is likely to stall in the months ahead as inflation stings businesses.

Inflation is making many consumers cross clothes shopping off their lists, according to Vericast’s survey of 1,000 U.S. adults, which found that respondents cited apparel and accessories as the top category they’ll limit this year. Three-quarters, or 76 percent, of millennial and Gen X consumers are putting more of their dollars toward store or private-brand products to do more with less, according to the marketing solution firm’s survey.

First Insight also documented a shift underway in consumer spending.

Nearly all consumers, or 97 percent, are rejiggering their spending in order to afford groceries, gas, housing and healthcare, their four biggest priorities, according to the product decision platform’s “The State of Consumer Spending: Inflation Impacting Consumer Confidence” report. The majority (82 percent) are sniffing out sales and promotions, while 40 percent say they’re sticking to a budget and 28 percent are buying less.

What’s worrying is that consumers polled for First Insight’s report believe inflation could last from six months to more than two years. With prices climbing on virtually everything they need to buy, many are worried about what inflation means for their job security.

Penny-pinching consumers say they’re trimming different areas of their fashion spend. They’re planning to cut back on fast fashion (28 percent), jewelry (33 percent), dress shoes (29 percent), casual wear purchases (29 percent), season-specific apparel (26 percent), handbags (26 percent), season-specific footwear (25 percent), activewear (22 percent), athletic footwear (20 percent), loungewear (19 percent) and outerwear (15 percent). Only 9 percent said they will reduce their spend on children’s wear. Among the lowest spending priorities was home décor at 8 percent.

“With inflation at 8.5 percent, rising prices will continue to impact all businesses for the foreseeable future,” First Insight CEO Greg Petro said. “Furthermore, categories that saw an increase in spending during the pandemic, such as jewelry, automotive, premium groceries, and apparel, will most likely see a contraction in consumer spending for the next several months. Companies must work to get an immediate understanding of how consumers are going to change in the days and weeks ahead by engaging with them directly to anticipate and respond.”

Additional reporting by Jessica Binns.