The U.S retail sector of late has been much maligned. While dramatic headlines suggest online retailers will be the death of traditional brick and mortar stores, the evidence suggests otherwise. A look at U.S. Economic Census numbers for retail during the last seven years (excluding food service and automobiles) shows growth averaging about 2%, well below GDP growth, which averaged 2.9%. In looking at the data for the sector one thing is clear, we are in the midst of a massive transformation. This is driven by the rise of the millennial and the transformation towards e-commerce. The change has been a gradual one. While there have been and will continue to be casualties along the way such as Sports Authority, in the end the consumer will win, and those that survive will be stronger for it.

For perspective, in 2009 e-commerce represented only around 4.8% of retail sales, whereas the latest numbers, on a seasonally adjusted basis show that about 9.3% of shopping is conducted online. While the overall growth trend should assuage any fears of major trouble in the retail sector, Q1 numbers were abysmal. Typically, economic indicators are strong and consumer spending is above average in election years, which makes the Q1 weakness in retail even more troubling. In 2012, Q1 total retail spending was $22 billion below the seven-year time series trend, while in 2016, the value was $92 billion less, 4.2x larger and the largest absolute below trend value seen for Q1 in the last seven years. Before discounting the Q1 value as an outlier, it should be noted that outliers are more often than not harbingers of marketplace shifts.

The remainder of the article appearing in the July 2016 issue of Modern Trader magazine can be found here.