Retailers Are Getting Pinched More Than Consumers

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Americans Have the Means to Spend, But They’ll Reduce It at the Stores

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Other investor calls paint just a picture of what economics is doing: Michael Hartshorne, chief operating officer of Ross Stores, said last week that “with higher fuel and food prices, discretionary spending is being squeezed out for the lower end customer.” is.” But with wages rising and domestic fiscals at their best in years, most people don’t have the means to beat inflation. They can continue to expand their spending, drive continued growth in consumer spending and, ultimately, the economy.

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Yes, rising prices are cutting salaries, but wages are also rising—especially for the poor. The Federal Reserve Bank of Atlanta estimates that among workers in the lowest quartile by income, a 12-month moving average of the average annual Wage growth in April was 6.4% Vs a year ago. The 12-month moving average for annual inflation was only slightly higher at 6.5%. In addition, because overall employment is much higher than a year ago, overall wages in the US have outpaced price increases.

Meanwhile, the cash flow experienced by many Americans in the wake of the pandemic remains largely intact. Notably, across all income categories, Federal Reserve data during the fourth quarter showed no signs of shrinking savings. For example, the middle 20% of households had 40% more in cash and cash equivalents at the end of last year than at the end of 2019 and 15% more at the end of 2020.

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So why is business down in the grocery aisle and elsewhere?
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While some are legitimately short of cash when prices rise significantly, as they have for food and fuel, people necessarily fall short of that category rather than cut back as a whole. Save the most within what they are experiencing inflation.

While consumer spending should continue to rise in the coming months, sales at many stores could be down as there is a continued shift towards services from a combination of COVID-19 concerns and high merchandise inflation.

People are dedicating more of their spending to categories like travel, dining out and entertainment away from home. For example, restaurant sales have increased significantly over the past year compared to store sales, while box office receipts So far, the month of May is running almost five times more than a year ago. Mobility data from Google shows people are spending the least amount of time at home since the pandemic began.

Even when it comes to accessories, Target said last week that shoppers are turning away from categories like electronics and travel and outgoing categories. For example, sales of goods grew more than 50% in the quarter ended April 30 compared to a year earlier. And while apparel sales slowed broadly, the company saw better sales in “trend-based apparel” (such as dresses for back to the office and evening outs). TJX Cos, owner of TJ Maxx, said US comparable-store sales in home-related categories declined 7% last quarter compared to a year ago, while comparable-store sales in apparel rose 6%.

Inflation could further accelerate the shift towards higher spending on services. The prices of consumer goods have increased far more than the prices of services, making the prices of consumer goods more attractive than before.

Complicating the problem for many retailers, the high prices of some of the items they sell seem to be cutting into sales of their other items. Large retailers like Walmart and Target are seeing consumers prioritize groceries and household essentials over discretionary items.

The pandemic period was great for a lot of retailers, demand was strong despite rising prices, and profit margins were rising. Now comes the hangover.

Write Justin Lahart at [email protected] and Jinju Lee at [email protected]

Credit: www.Businesshala.com /

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