May Retail Sales Jump on Strong Auto and Apparel Store Sales

Retail sales rebounded in May after a flat April, an indication that the recovering job market might finally be stimulating the important consumer engine that drives 70 percent of economic growth.

Total retail sales rose by 2.7% compared to last May, to $444 billion, according to data released Thursday by the U.S. Department of Commerce. On a 12-month smoothed basis, sales were up 3.4%, no doubt helped by the 280,000 new jobs added in the economy during the month, bringing the year-to-date increase in employment to over a million jobs.

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The biggest jump in sales–more than 10 percent on a 12-month smoothed basis—was at automotive retailers. Excluding autos, retail sales grew by 1.7%.

Non-store retailers, or pure-play e-commerce, had its best month in over a year, with sales rising by 8.9%. The furniture, building materials and restaurant sectors each enjoyed sales increases around 7.7%. Sales at electronics and appliance stores, however, bucked the upward trend in the home segment, suffering an almost 4 percent decline on a 12-month smoothed basis.

Sales in Apparel-Centric Channels

Sales at department, chain and discount stores dropped 2.7% on a smoothed basis, an improvement over April’s more than 5 percent decline.

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Apparel specialty stores had a great month, rising by 4.5%, more than double April’s 1.8% increase, helped by a reported improvement in the women’s business and continued strength in men’s and kids. This was quite a feat considering the highly promotional environment characterizing apparel today, and the increasing influence of fast fashion players who are gradually gaining share from traditional mall-based players.

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The combined department and specialty sector, a barometer of overall apparel sales, saw only a 1.5% increase in sales, but this was a positive swing from last month’s 1 percent drop.

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Rising Inventories A Concern

One cause for concern among apparel industry experts has been the gradual increase in the inventory-to-sales ratios for both the apparel and department/discount sectors. The apparel ratio has increased from 2.35 to 2.5 in the past year, and for large retailers, has risen from 2 to 2.1. Given the major investments that retailers are making in omnichannel systems, one would expect these measures to fall instead of rise. Bloated inventories in the marketplace could result in unexpectedly high levels of clearance sales and demands for markdown money, which would pressure profitability at all levels of the supply chain. 

Store Traffic Continues to Decline

Another cause for concern is the fact that physical store traffic continues to fall. According to Big Data supplier RetailNext, brick-and-mortar traffic fell by 9.8% in May. Though this was a smaller drop than April’s 14.6% decline, average transaction value rose by only 0.8, the smallest increase in the measure in four months. Retail sales were weakest in the third week of the month, leading up to Memorial Day weekend. Warm weather drove many people into stores looking for seasonal merchandise. Store traffic declines occurred in all four main regions of the country, but were steepest in the Northeast and South.

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