The retail bears will be out in force as companies in fashion retail begin to report quarterly earnings this month.
Foot traffic started to pick up in April on the Easter holiday, but not enough to offset slower March trends.
Unfortunately, traffic deceleration in the U.S. softlines space picked up speed for the week ending April 29. A UBS report from retail analyst Jay Sole said the decline was 27 percent from the prior week, with foot traffic decreasing 29 percent at specialty doors and down 22 percent at department stores. The prior week’s foot traffic rate was down for both channels at 14 percent and 13 percent, respectively. He noted that even foot traffic at off-price retailers was down 15 percent from the prior week, when this segment showed a 1 percent growth rate.
A sampling of foot traffic declines at different retailers includes Champs and Aerie, each at -40 percent; Vans, -34 percent; Michael Kors, -33 percent; Coach, -33 percent; DSW, -30 percent; American Eagle, -28 percent; Nordstrom, -27 percent; Kohl’s and Old Navy, each at -24 percent; Macy’s, -23 percent; Burlington, -21 percent; Dillard’s, Nike and Home Goods, each at -18; Lululemon and Ross Stores, each at -17 percent; Carter’s, -8 percent, and DD’s Discounts, -1 percent. The data is from UBS Evidence Lab combined with foot traffic data from a third-party tracker that includes mobile phone app data with digitized business locations, UBS said.
Stubbornly high inventory spurred many retailers to roll out discounts and promo in April. In a research note, Wells Fargo retail analyst Ike Boruchow noted conservative wholesale order books for spring and summer. On the big-picture front, these trends are likely to extend into the second quarter, which could mean the first half won’t be anything to brag about.
April markdowns worsened from March, continuing the promo trend that emerged in November, Boruchow wrote. Inflation, lower tax returns and cuts to SNAP (the U.S. federal government’s Supplemental Nutrition Assistance Program) benefits will create consumer spending problems for retail, he added.
“With tough 1H numbers in particular coming down on rocky sales, weaker [gross margins], and tough wholesale numbers, our best guess for better inventory alignment with go-forward sales is into the Back to School season,” Boruchow wrote.
Since the start of the year, “[W]e’ve seen the pace of softlines spend notably decelerate—landing at 6-7 percent in December/January, then 5 percent in February, then 3 percent in March,” he added.
A consumer sentiment survey from TD Cowen in February indicated that inflationary pressures were dampening consumer demand as prices rose from a year ago. In reaction to higher prices, 73 percent of consumers said they have either cut their spend or expect to make cuts in certain areas. Among the top categories for cuts in spending were social events such as dining out at 61 percent, travel at 51 percent and apparel and accessories at 49 percent.
Sentiment hasn’t improved since then. U.S. consumer confidence fell in April, with the Conference Board’s Consumer Confidence Index declining to 101.3 from 104.0 in March. Expectations of respondents who participated in the April survey, conducted three weeks after the March bank failures, indicated that they were more pessimistic about the short-term outlook. They also expect fewer jobs to be available over the short term, which is defined as the next six months. April’s decline in confidence was particularly notable among consumers under age 55 and for households with annual income of $50,000 and over.
There are no indications that the jobs front will improve as hints of a slowing labor market grow each day.
Job cuts are another concern, with Nordstrom, Saks.com, Amazon, Google, Salesforce, Meta, David’s Bridal, Bed Bath & Beyond and Tuesday Morning shedding staff in recent months.
Economists at Wells Fargo expect labor demand to fade in the months to come. On Wednesday, ADP’s private sector employment report said pay growth slowed in April even as employers were hiring aggressively. On Thursday, data from the U.S. labor market indicated that the number of those claiming first-time unemployment benefits rose by 13,000, or up 5.68 percent from the prior week, to 242,000 for the week ended April 29. But even though initial jobless claims ticked up the most in six weeks, the unemployment rate—hovering at the 3.5 percent range—is still considered low.