The number was shocking: U.S. retail sales rose 17.7 percent from April to May. That jump far bested the predictions of economists, who expected a more sluggish increase of just 7 percent or 8 percent.
What’s behind this surprising increase in retail sales during the middle of the COVID-19 pandemic? Midwest Real Estate News spoke to Jaime Ward, head of retail finance with Citizens Bank, to find out. Here is some of what he had to say.
May’s retail sales numbers seemed to surprise everyone. Why do you think we saw such a big increase from April?
Jaime Ward: That was a surprising result. The economists predicted a bump in retail sales of 7.7 percent. It coming in at 17.7 percent instead was not expected. But what we are seeing now is that retail traffic has come back stronger than we expected. Right now, into June, we are seeing that the latest weekly numbers are 90 percent of last year in terms of retail traffic. There are lot of us in the Northeastern states who aren’t seeing that with our own eyes. But much of the rest of the country is returning to the things they like to do.
I think the numbers reflect pent-up demand. We call it ‘revenge shopping.’ It’s payback for being cooped up for about 10 weeks at your house doing nothing but maybe going to the grocery store and hardware store. People have focused on some consumer ‘me’ time by going out to the malls and strip centers. Some of that includes apparel shopping. Apparel has made a comeback. Who knows if it is sustainable, but for the time being, it is greatly appreciated by the retail chains.
It looks like people might have been more anxious to get out shopping than economists expected.
Ward: It is a return to doing something consumers like to do. We will see if this is a trend that builds on itself. There are certainly a lot of factors out there. People are still cautious about COVID-19. But our clients who have stores all over the country have been pleasantly surprised. We have a couple of department store chains based in the south and southeast with additional stores in the Midwest. Outside of the big cities, those chains are doing pretty well. They are exceeding all their internal expectations.
Are you seeing any other good retail news, even during this pandemic?
Ward: There are a couple of other metrics that we look at. Obviously, there are certain retailers that are going away, that are liquidating in full, such as Pier 1. That liquidation sale is going much better than expected. Again, it is pent-up demand and people going out and doing an activity they haven’t done in months. And it feels pretty good to them.
We were seeing plenty of department stores struggling before the pandemic. Do you think we’ll continue to see this part of the retail sector continue to face challenges?
Ward: There is a secular decline of the department store as we know it. There will continue to be department stores, but they will have to change, they will have to evolve to meet the changes in consumer buying habits. We will probably never buy clothes at the same place we buy riding mowers or ladders again. That doesn’t make sense to consumers today, not in an era where the Internet allows us to look and find exactly what we are looking for.
Specialized brick-and-mortar stores will be more laser-focused on what we want and need, rather than asking consumers to search through a general display of goods. That trend will continue. The department stores are going to end up being large apparel stores with a shop-inside-a-shop focus. You can get all these fantastic special brands without going to an individual specialty store. But department stores will no longer offer everything and anything.
You mentioned the big sales in apparel. What’s behind the strong numbers in this category?
Ward: The stimulus checks have helped. The pent-up demand has helped. Even the folks most impacted by this, the furloughed employees, they went out and shopped. The $600 a week in enhanced unemployment benefits allowed those folks to have a little more to spend. The hope is that the furloughed employees will now start to be hired back. The reality is, that is a concern on our side. A lot of those employees, and no one knows the percentage, are not going to be rehired. Once that extra $600 a week ends in July, what happens then? We are expecting to see a drop-off in consumer activity at that point unless the financial support from the CARES act gets amended and extended.
Ecommerce was certainly booming before the pandemic. Do you think that shift from brick-and-mortar to online sales will only become more pronounced now?
Ward: The pandemic has certainly accelerated it. One of the areas that has been most impacted is grocery. We are now moving much faster to a delivery type of format in the grocery sector. You can buy online and pick your groceries up in the store or have them delivered to you. This was available before the pandemic, of course, but more consumers have turned to this model now.
The same thing is happening in the restaurant business. Delivery has become even more important than it was before the pandemic. Unfortunately, in both situations, and especially in the restaurant industry, delivery is not as profitable as it needs to be. Right now restaurants are moving more toward delivery. But it’s not profitable. At some point, there has to come a tipping point where the consumers are willing to pay more for the convenience of delivery. If that happens, it can become more profitable. It isn’t there yet.
There is a hurdle with groceries, too: Do you want someone picking out your perishables, your meat, deli, vegetables and fruit? There is now a wide swatch of the population that has grown comfortable with that. That is the major hurdle. If we don’t go too far backward from here, grocery delivery could become a part of our daily and weekly consumer routines.