Navigating the strong headwinds from the pandemic has not been easy for retailers this holiday season, but here are five things we have learned about their response as reflected in the November retail sales data released by the Commerce Department on Wednesday.
Stockings are already full
October and November sales had strong holiday season increases both on an annual basis as well as in total dollars. November had a 13.9% annual increase in retail sales excluding food service, gas, building materials and auto dealers. That’s the largest increase in this category during the holiday period since the data started to be tracked in 1993.
It shows that many retailers, facing delays for goods amid snarled supply chains, succeeded in stretching the holiday shopping season this year. The question remains: What is left for December with inventory still heading to stores?
Strong year for most retailers
Total retail sales grew to $6.776 billion for the year through November, a 19.6% annual increase over the same period in 2020. Retailers have faced margin pressures from production and delivery costs and have managed to pass some of those costs on to their clients. This accounts for a portion of the increase in year over year retail sales growth, with consumer demand driving the rest.
Grocery and food spending continues to rise
Consumer spending on food continues to climb. We have seen a steady increase in activity at grocery stores and in food services and drinking places, which is a proxy for restaurants. Continued pressure in these areas heading into next year may start to dampen other consumer spending if wages don’t keep up.
2021 will not happen again
Retail sales this past year have had yearly increases in every month, often in double digits. It’s unlike anything we have seen before. These gains have allowed retailers that made it through 2020 to see unusually strong revenue growth. But companies do not run on the top-line number only, and most have used the revenue growth this year to make investments in operational efficiencies in the hope of maintaining longer-term margin gains.
People want to get out of the house
As people eager to get out of the house look for experiential shopping, department stores have had a resurgence this past year. While department store sales in November fell by 5.45% month over month, some shoppers are showing a willingness to physically shop in stores. Heading into next year, the question will be whether foot traffic will continue to lead to increases in sales.
The takeaway
While November retail sales growth of 0.3% month over month was below the estimate of 0.8%, we still see a strong finish to a tough holiday season and a year with many headwinds. Next week’s inflation-adjusted numbers will provide a better sense of how much of this growth is a result of rising consumer demand versus costs being passed along.
