Retail Sales Maintain Steady Pace as Economy Posts Moderate Growth; Online Sales Push Retailers to Adopt New Strategies

April 21, 2016

  • U.S. consumers continued to play an active role in creating economic growth in the first quarter, lifting core retail sales, which omits gasoline and automobiles, at a steady but moderate pace. With manufacturing, exports and business investment softening in response to a strong U.S. dollar and with reduced activity in the energy sector, the U.S. consumer will assume a greater role in the economy. The outlook for retail sales remains positive with the respectable pace of job creation and rising wages offsetting perceptual headwinds created by international economic weakness and elevated caution levels sparked by Wall Street volatility.
  • Core retail sales advanced 3.9 percent over the last year, remaining in alignment with the long-term average. Consumers continue to fill parking lots at retail properties, as evidenced by strength in spending at store-based merchants. Gains over the last year have been led by spending on home improvement projects, which boosted receipts at building materials and supplies stores 10.8 percent, while sporting goods and hobby outlets posted an increase of 6.1 percent. The health and personal care retail category, which includes drugstores, also registered a gain of 6.3 percent, possibly reflecting the enrollment of more consumers in employer sponsored healthcare plans.
  • Growth in online sales continue to account for a larger share of retail spending while also forcing traditional retailers to adapt to the rapidly evolving consumer behavior. Online sales jumped 6.5 percent over the past 12 months, topping the pace set in the preceding year. The growing use of digital channels, including smartphones, prompted luxury goods retailer Nordstrom to recently announce job cuts as it shifts its labor force to favor e-commerce. Sports Chalet is another retailer caught by changing consumer behavior, as they recently revealed plans to shutter all stores. The highly competitive and increasingly specialized sporting goods segment has lost considerable ground to online shopping, forcing remaining retailers in this segment, such as Dick’s Sporting Goods and REI, to adopt more sophisticated omnichannel trade practices.
  • Elevated apartment construction, particularly in core urban areas of major metros, continues to generate new requirements for close-in retail options. Bars and restaurants have fared particularly well in recent years as they expand footprints in urban neighborhoods. This emerging live-work-play lifestyle has helped support rental housing in urban areas and maintained the U.S. apartment vacancy rate in the low-4 percent range even as a significant wave of new apartments come online.
  • Even as households repair balance sheets, consumption has continued to generate strong retail space demand. Expanding retailers will occupy an additional 61 million square feet this year, slicing the U.S. vacancy rate 30 basis points to 5.9 percent, the lowest level since 2005, and supporting a 2.8 percent gain in the average rent. The subdued pace of property construction has been a key contributor to tighter vacancy.

The Research Brief blog from Marcus & Millichap offers timely insight and expertise into the rapidly changing investment real estate industry. The Research Brief is published by top industry professionals, showcasing time-sensitive information and valuable analysis. Add the Research Brief blog to your reading list today.

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.

Post a Comment

Required fields are marked *


%d bloggers like this: