Boarded up storefronts. Malls turning into empty shells. Small retailers struggling to stay in business. Have consumers stopped spending? Or are we just buying everything online?
The surprising answer to both is no.
Consumer spending is quite healthy. The Bureau of EconomicAnalysis tracks consumer spending, along with a host of other stats about the US consumer. While there was a surprise decline in spending in December, consumers bounced back in 2019. In March, consumer spending increased by 0.9%. After adjusting for inflation, that increase is still a healthy 0.7%.
Our spending is affected by all kinds of things. Of course, the biggest is the economy. When we have jobs and are not concerned about layoffs, we spend more. But we also change our spending habits because of other things. Colder than normal weather. Natural disasters like hurricanes. Anything that makes us fearful—crime, politics, acts of God—can cause us to pull in the purse strings. Because consumer spending represents about 2/3 of our gross domestic product, any change has a ripple effect.
And personal savings rates and consumer spending are the two sides of the same coin. Consumer spending rose in March, while savings rates declined from 7.3% to 6.5%. As financial advisors, we find ourselves walking the fence on this one. Overall spending pushes the economy (a good thing), but low savings rates make us nervous for our individual clients.
So we’re still spending money, but what are we spending it ON? Well, the consumer spending stats include spending at convenience stores and grocery stores. That means the price of gasoline has an effect on these numbers. It also means we are eating well (not a bad thing). And anyone who does the grocery shopping in the family knows that while overall inflation remains low, the price of food continues to climb. Yes, the economists adjust for inflation but may not account for price increases in particular products.
Is online shopping killing Main Street? Not yet. 91% of retail sales occur in stores, not online. I guess that means we can’t blame the decline on Amazon? Well, not so fast, because the ease of shopping online does change the landscape for local retailers. They have to offer more products at more competitive prices. It’s harder to make a profit in this area, and many retail landlords haven’t caught up to the new reality. They are trying to maintain or raise rents on retailers who have fewer dollars to cover overhead. It’s a squeeze.
Payless is closing all 2100 of their stores this year. Fred’s will close 30% of their stores. Bed Bath and Beyond has announced store closings. Charlotte Russe is facing liquidation, and Sears is disappearing into the history books. Former mall anchors are shrinking or disappearing. J.C. Penney. Belk. How can a local retailer survive in this environment? WHY would anyone consider a new retail venture when faced with such obstacles?
The good news is that we still like to shop in stores. We like to pick up things, see them in person, try them on. Low-priced retailers are bucking the trend. Think Dollar General. And upscale retailers are also doing quite well in this booming economy. It’s the folks in the middle who are struggling.
So if you want to be in retail, choose wisely. Know your market. Be choosy when you stock those shelves. Negotiate with the landlord for low rents, but don’t sacrifice foot traffic for a low monthly rent.
The landscape for retail is changing. Amazon is buying up those old malls and turning them into distribution centers. Main streets across the country will have get creative when it comes to filling up empty spaces. And hard decisions will have to be made about those strip malls that are no longer viable.
It’s a retail revolution, and only the strong will survive.