Looking Beyond the Headline Retail Sales Numbers

by CoyDavidson on February 15, 2011

Research Matters

By: Ross Moore | Chief Economist, Colliers USA

Earlier today, the Commerce Department released retail sales data for January showing a 0.3% increase. While this was slightly below expectations it did mark the seventh consecutive month-over-month gain. During January retail sales and food services, excluding motor vehicles and parts, increased by a similar amount leaving annual growth up 6.2% year-over-year. After a period of extremely weak retail sales the U.S. consumer appears to be back shopping with similar gains anticipated in the coming months. The composition of retail sales, however, continues to undergo considerable change.

Retail Sales By Category Differ Significantly

As the chart below reveals, different retail categories have performed markedly different over the last five years. Data from the International Council of Shopping Centers (ICSC) shows wholesale club have been the fastest growing category, increasing sales by 4.3% per year on average, however, after excluding fuel sales, annual growth falls to just 1.9%. In second position is drug stores with average annual growth of 3.3%. Perhaps not surprisingly, discounters follow with five year annual average growth of 1.7%. What may surprise some people, however, is the luxury sector which shows growth (albeit by just 0.5 %) despite a period marred by one of the most severe recessions on record, followed by a very tepid recovery. Three categories that have seen retail sales shrink have been department stores, apparel and the teen segment. However, if retailer The Gap is excluded from the overall apparel numbers, average annual growth turns positive at 0.4% per annum. Department stores have been the second worst performing sector with average annual sales growth of -0.8%. The teen segment has underperformed all other categories with sales shrinking by 2.4% per annum.

Retail Spending Patterns Likely to Create Distinct Winners and Losers in the Coming Years

The data in the chart above may not look all that significant, but compounded over many years, and quite possibly many decades, could result in considerable differences in demand for retail space. The relative strength of the discount sector including Warehouse clubs is an obvious response to the tough economic conditions many people have endured for much of the past three years. At least in the near term, look for the trend towards value shopping to continue. Drug store sales are also expected to stay strong as demographics support higher spending on health care and a move to convenience. At the other end of the spectrum, the sluggish performance by many of the nation’s department stores is cause for concern as these retailers have traditionally acted as anchor tenants in larger retail properties. This paradigm is unlikely to change, leaving owners of regional malls to shop other categories for another anchor capable of creating similar foot traffic. The continued growth of discount and wholesale clubs will pose tough challenges for commodity-like centers that have retailers competing on high volume-low price. Analysis such as this can be a little simplistic as exceptions to the rule always exist, but these general themes are almost certain to be significant forces for the foreseeable future.

Ross Moore is the Colliers International’s Chief Economist with a focus on providing bottom-up and top-down analysis of commercial real estate markets across the United States. In addition to his North America wide reports, Ross also authors all global research produced by Colliers.

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