Retail sales rose 0.7% in July from the prior month, beating analysts’ expectations for a 0.4% rise, likely driven by a series of July discount events at major retailers and the start of back-to-school shopping. The rise marked the fourth consecutive month of increases.
Stripping out spending on gas, food, autos and building materials, retail sales increased by 1.0%, double analysts’ expectations for a 0.5% increase, according to Commerce Department data released Tuesday. This control group is a key barometer for discretionary spending.
We were not overly shocked to see an upside surprise across the board, given the number of sales events that took place during the month, as well as the early start of back-to-school shopping. Industry surveys have suggested that consumers were likely to start back-to-school shopping earlier, and it appears consumers took advantage of the depth and breadth of discounts offered by both brick-and mortar and online retailers this month.
July retail sales performance is a good indication of discount strategies retailers are likely to employ through the upcoming holiday season to ensure strong foot traffic and online engagement. Inventory levels are well-positioned for retailers; however, wholesalers continue to sit on elevated inventory levels, particularly in the categories of electronics, home products and apparel. That said, the strong July sales indicate that wholesalers may not be too exposed with excess inventory and could benefit from the continued demand by having safety stock on hand to replenish retailer orders for the rest of the year.
Digging into the industry categories, sales of home furnishings, electronics and appliances fell 1.6%, the largest decline of any category. This isn’t overly surprising, given that commentary tied to some earnings reports this week indicated consumers are pulling back or outright halting purchases of big-ticket items, as they focus on smaller purchases aligned with DIY-type projects. Additionally, this category is traditionally closely related to home sales and renovations; and given the surge in spending on these projects throughout the course of the pandemic and the lack of significant home sales more recently, this category is likely to stay under pressure.
Clothing and clothing accessories sales increased 1.0%, the best month-over-month performance since January, likely driven by discounting levels and early back-to-school shopping.
Sporting goods, hobby, book and music store sales increased 1.5%, the best month-over-month performance of the year and additionally likely driven by discounting strategies and early back-to-school shopping.
Online and catalog retailers saw sales increase 1.9%, the best month-over-month performance of the year on the heels of a 1.5% increase in June. Performance of this category is entirely related to discount events during July.
August promises to be a tough month for retail comps, given this July performance. There is a lot of talk around the potential constraints that student loan repayments will have on shopping patterns later this year; it still remains to be seen how this will impact overall shopping, but it will be important for retailers and other sellers to have the tools in place to analyze their consumer base to understand how exposed sales are to this consumer cohort.