Analyst Corner

NewsFlash: Retail in US grew 4.1% in Q1 2017

FAKE NEWS, FAKE NEWS…. At the risk of going political on you, if you read the mainstream news after the latest US Department of Commerce report you see headlines like “Retail Apocalypse” and “Retail Death Spiral”.  At best these show lazy reporting, at worst absolute fake news.

Somewhere along the way the government decided to switch to measuring retail based on month to month growth.  This means that for growth to occur in each month sales needed to be larger than the previous month.  In a cyclical business like retail where holidays shift, buying seasons shift and weather concerns can change entire weekends, this is absolute foolishness.  No one runs their business based on this month vs last month sales.  But over a quarter or longer period of time those nuances iron out and you get a truer picture of what is going on.  And that news is not only good news, it’s great news.  For instance, did you know retail sales grew in Q1 even over the holiday quarter of Q4 2016?  Of course not, that’s buried in the report and a reporter would actually have to look for that.

What’s the truth?  Retail sales in the US grew 4.1% for Q1 over 2016 despite the Easter holiday being in Q2.  Get that?  Excluding autos, food service and fuel, retail sales increased over $45 Billion in the quarter.  Let’s put that in perspective.  Although these figures don’t include food service in the figures I’m going to use two worldwide brands to show the magnitude of the retail growth.  The Retail Apocalypse they are talking about was that the retail economy only grew in the first quarter the equivalent of adding Starbucks and McDonald’s worldwide (yearly) revenues…in one quarter. That’s before the peak Easter buying AND the there is enough room to even account for the rise in revenues for the Unicorn Frappuccino!!!

Seriously, can we stop with the death of retail comments?  Since when is 4.1% growth of a $2 Trillion industry a death spiral?  Only in fake news.

What is true is that many retailers over the years managed their money and building campaigns like boxers and other pro athletes managed the millions from their contracts!  Growth and spending for growth’s sakes.  By the end of 2016, the square footage per capita in America was nearly 5x that of other western countries.  Since the 1970s, shopping malls and sales space grew 4x the pace of population growth creating an unsustainable bubble in department stores and specialty soft goods retailers.  The weakest are simply being weeded out right now and this is good for retail.

Keep in mind that just because a store is closed or a weaker competitor goes out of business those sales are not lost to the industry.  Most likely a customer will simply move to a competitor.  The strong with survive any maybe prosper. That is the definition of the free market.

Is it all Amazon’s fault?  Another product of lazy analysis.  Retail sales have actually grown in the last 4 quarters equivalent to almost all of Amazon’s retail revenues.  The issues are not from Amazon, albeit they are changing the game and retailers must adjust to this new competitive reality.  Instead these issues are self-inflicted and due to decades of rampant overexpansion. It is Icarus flying too close to the sun.  It’s simply a matter of economic physics…if your branches extend further than your roots go deep, you are going to fall.  You will fail…and this is good for retail because the strong get stronger and are better positioned to take on new competitors.

What is true is retail is changing in many different ways.  Retail formats that cater to the middle class are in trouble because the middle class simply does not exist in the same numbers as it once did.  You have the haves and the have nots economically.  And the rules of engagement of retail have changed, but many are still playing by the rules of 60 years ago.  Those who refuse to look at IT as a strategic investment for turnaround, but only as an operational expense are in trouble, period.  But retail is not dead, just rapidly evolving.

You’ve heard about store closings, but have you heard about the retailers opening stores?  We did our own preliminary research on store growth and just looked for recent announcements.  These 19 retailers are opening 2,861 stores in the same period…. But this news is not being syndicated and shared…  Why?  Because the bad news sells better.


Retail is a business that is changing, but is doing just fine as an industry.

So let’s lose the “Sky is Falling” mentality…it’s not only lazy, it’s fake news.