February 16, 2016
- Shaking off inclement weather in many parts of the country and the post-holiday doldrums, consumers headed to stores in vast numbers and frequently logged onto online retailers’ websites to drive up retail sales in January. Last month’s gain, plus an upward revision to the initially reported drop in December, reinforces a positive outlook for the U.S. consumer in the face of volatility in global markets and uncertainty in overseas economies. Other economic gauges, including continuing strength in the labor market, low inflation and an upswing in housing, also point to sizable contributions to economic growth by the U.S. consumer in the coming months.
- Total retail sales jumped 3.4 percent in the 12 months ending in January, highlighting a continuing desire among consumers to spend more freely as the employment outlook remains stable. Declines in gas-station outlays are transferring consumer dollars into other categories, particularly food and drinking establishments, where receipts climbed 6.1 percent over the last four quarters. A slight drop in the category last month, however, likely reflects temporary closures related to severe weather. Spending in discretionary categories is strengthening as well, with sporting-goods and hobby retailers posting a 9.1 percent year-over-year gain, and motor-vehicle and parts sales also logging a gain.
- Sales at department stores declined over the past 12 months as consumer preferences continued to shift toward the convenience of online retail. Large retailers continue to re-evaluate store counts and build up an Internet presence for larger arrays of items. Macy’s, in particular, recently disclosed its intention to shut down 36 underperforming physical locations in an effort to boost performance. Other notable retailers with expected store-count shrinkage over the next year include Wal-Mart, Barnes & Noble and office-supply retailers Office Depot and Office Max.
- Non-store sales jumped 8.7 percent over the past 12 months. Internet retailers require larger inventories to fulfill promises of same-day delivery on many items, prompting an increase in demand for warehouse space in major metros. Additional expansions by retail tenants will contribute to a 50-basis-point drop in U.S. industrial vacancy this year to 6 percent. Brick-and-mortar electronics and appliance stores, specifically, continue to face stiff challenges from the non-store retailers, and could continue to shrink physical retail-space requirements.
- Greater consumer confidence is becoming more apparent as consumers step up purchases of larger, long-lasting items. Building-materials and furniture-store receipts, specifically, rose during the past 12 months. Overall, the increase in spending at malls and power centers generated new space demand and contributed to retail property net absorption of 66 million square feet last year. Additional growth in occupied space will trim U.S. retail vacancy 30 basis points in 2016 to 5.9 percent.
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The information contained herein was obtained from sources deemed reliable. Every effort was made to obtain complete and accurate information; however, no representation, warranty or guarantee to the accuracy, express or implied, is made.