Retail Traffic

Weak May Sales Numbers Damage Notion of "Green Shoots"

May's retail sales numbers might disappoint those who hoped the current downturn is nearing an end, industry experts say. Although the U.S. Department of Commerce reported a seasonally adjusted 0.5 percent preliminary increase in total retail sales for the past month, to $340 billion from approximately $338 billion in April, the big picture reveals some concerns. The sales figures are down almost 10 percent year over year and retailers' same-store sales figures were also off considerably from last year's levels. The fact that Wal-Mart, the biggest retailer in the country, stopped reporting same-store sales results in May likely skewed the figures lower than they would have been otherwise. And other evidence indicates that consumers continue to hold back on discretionary purchases.

On June 11, the Commerce Department reported that total sales for May rose 0.5 percent over April, but fell 9.6 percent over the same period last year. (Check the Traffic Court blog for more.) The results were lauded as better than expected by analysts. However, higher gasoline prices partially accounted for the month-over-month increase, according to Abigail Marks, economist with CBRE Torto Wheaton Research, a Boston-based research firm. By May 31, the national average for gas prices reached $2.50 per gallon, up 22 percent from approximately $2.04 per gallon at the beginning of April, according to the American Automobile Association (AAA).

As a result, sales at gasoline stations rose a seasonally adjusted 3.6 percent from March in April—far outstripping monthly gains at other retail segments. Meanwhile, sales at department stores, for example, dropped a seasonally adjusted 0.7 percent from April. Aside from gas stations, the most successful segment was building materials and garden equipment stores where sales rose a seasonally adjusted 1.3 percent.

The same-store sales results reported by chain retailers showed a similar weakness. According to ICSC's index of 32 retailers, same-store sales, however, fell 4.6 percent. In April, when Wal-Mart's results were still included, same-store sales for U.S. chain stores rose 0.7 percent. However, if you strip out Wal-Mart's numbers, same-store sales declined 2.7 percent in April. (Check our Chart of the Week, which graphs the same-store sales with and without Wal-Mart from 1993 to 2009.) Luxury stores had the worst month in May, with an 18.1 percent decline in same-store sales, followed by department stores, which were down 9.4 percent. The only sector to report positive same-store sales growth was drug stores.

"Wal-Mart's decision to no longer report monthly sales does have a negative impact on the overall same-store sales figures simply because the number will now be lower, but the overall trend appears to be the same," says Marks. "Both the Census figures and the same-store figures appear to have bottomed out and now they are just remaining flat. It will be a slow recovery, but I feel that the worst is over."

ICSC's analysis of the results placed part of the blame for the lackluster results on the fact that last May Americans received approximately $50 billion from the government through President Bush's stimulus package. But retail market experts counter that a large chunk of the stimulus money went toward paying existing bills rather than on new retail purchases. In fact, even factoring in the gap left by Wal-Mart, May sales numbers were rather weak, says C. Britt Beemer, president of America's Research Group, a Charleston, S.C.-based consumer behavior research firm.

"I looked at retail sales for May as a huge disappointment because I thought they would be up much more," Beemer notes. "I've been told that only once in every 11 years does Memorial Day fall so early that [the entire Memorial Day weekend] is all in May. With the sales figures being very anemic even with all of Memorial Day in May, my reaction is that things are even worse that I thought."

A survey of approximately 1,000 households America's Research Group completed in early May showed that only 29.9 percent of consumers planned to spend more money in May than in April. On the other hand, 43.9 percent of those surveyed planned to make fewer purchases, primarily due to pressing debt payments and higher gas prices. Approximately 26.7 percent planned to buy only those items that were on sale for half price or less.

Also, in May the Deloitte Consumer Spending Index, which tracks consumer cash flow as an indicator of future consumer spending, reported a decline to 1.35 percent after a 1.44 percent gain in April. The fall was partially driven by an increase in the consumer savings rate—to 5.7 percent from 0 percent during the same period a year ago—and falling housing prices.

This trend of consumers holding on to their wallets will likely continue until there is a marked improvement in the employment situation, according to George Whalin, founder of Retail Management Consultants, a Carlsbad, Calif.-based consulting firm. In May, the U.S. unemployment rate reached 9.4 percent, above the projected rate of 9.2 percent. The figure was also higher than the 8.9 percent unemployment rate recorded in April. (Last week, Retail Traffic's sister publication NREI analyzed the recent unemployment figures.)

May sales figures "weren't good, there were a few retailers that had decent numbers, but we are a long way off from being through this thing," says Whalin. "There are a lot of people who are very nervous about their jobs and that's just not good for us in the retail business. And a good number of major retailers are not buying anywhere near [the amount of merchandise] they typically buy for the holiday season, so they don't have major confidence either."

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