July 2020 Retail Sales – Welcome news, but less than it seems

The Census Bureau reported almost shocking economic news last week: retail sales now exceed pre-pandemic levels. Retail sales including restaurants amounted to a record $536 billion on a seasonally-adjusted basis, up 1.2% over January. This volume is a remarkable achievement, especially considering that unemployment still exceeds 10% – down from its pandemic peak, but still above the high-water mark in the Great Financial Crisis (GFC). For comparison, retail sales took 2½ years to return to their pre-recession peak after the GFC, and here we are back at another peak after just six months.

Welcome news for the beleaguered retail sector? Definitely, but not quite as positive as landlords, tenants, and investors would hope. A closer look at the data reveals that bricks and mortar retailers have not yet fully recovered, particularly at the mall. Much of the gains have gone to “nonstore retailers,” predominantly e-commerce.

To be sure, shopping center and mall sales have been trending up in recent months as more of the economy has reopened. Mall sales, especially, have grown since their trough in April. But overall, in-store retail sales have not kept pace with total retail sales as more shopping has shifted online. And more spending has swung from discretionary items typically found in malls to more essential items sold in grocery stores, pharmacies, and home improvement stores.

But the far bigger challenge for shopping centers and malls is that this level of retail spending is likely not sustainable, propped up by enormous – but temporary — government income support. In the face of a widening pandemic and massive economic disruptions leading to a deep recession, the federal government stepped in to replace or supplement income on a scale far exceeding that in prior recessions.

However, these programs have all now expired, which will trigger another round of layoffs and reduce consumer spending. It now seems certain that – absent additional government interventions — retail sales will fall again in August and remain depressed until the pandemic eases and the economy recovers.

Thus, the recovery in retail sales reported last week is clearly positive news, but retailers and shopping center owners should not be deceived into believing that the crisis has passed. More challenges are sure to emerge in the coming weeks.

You can read the full blog here.

Photo by Heidi Fin on Unsplash