The news out of the commerce department proved to not just rain on the holiday shopping parade, but a downright typhoon. Gains in US retail spending for November came in at just 0.2%, significantly off from the expected figure of 0.5%. While it's only the start of the holiday shopping season, and there's still plenty of time for things to turn around, it's not exactly a positive way to kick off the season that should be make-or-break for retail, a field which has seen its share of troubles in recent months.
Americans Stop Spending on Several Fronts, But Not All
The reports from the Commerce Department suggest that the spending cuts were pretty widespread, and not strictly limited to retail. Spending on dining out—including both restaurants and bars—dropped 0.3%, while book stores, hobby shops and musical instrument dealers saw sales drop 0.5%. Clothing stores, meanwhile, saw one of the biggest drops at 0.6% overall.
However, the picture isn't all doom and gloom here; there were several market segments that saw sales increase, and some of these may offer an explanation as to what happened everywhere else. For instance, car sales were up 0.5%, and this after a jump of one percent even in October. Gas prices rose a little, and that was enough to kick gas station sales up 0.7%. Online shopping—which includes mail-order sales—was up 0.8%, and that after a 0.6% gain in October. Furniture stores managed to eke out a 0.1% increase, and building supply stores stayed unchanged.
Signs of Contributing Trouble Seem Thin
Naturally, we've come to expect one big economic push in November, and in December, thanks to the massive retail rush of the Christmas shopping season, along with its attendant boosts from Hanukkah and more recently Kwanzaa. When that push doesn't arrive, many like to look for causes, but those who did likely wound up stymied.
Interest rates were steady from a recent Federal Reserve decision on Wednesday, and in all honesty, interest rates have been fairly stable for some time now. The unemployment rate dropped to 3.5%, and back in November, the economy added a fresh round of jobs to the tune of 266,000 hires.
There's also the point of earlier gains to consider; in the traditionally-slow July-September period, the economy gained at a rate of 2.1% overall, which may have pulled some of the wind out of the sails going into the fourth quarter. Current consensus estimates point to a 1.8% growth rate in the economy for said quarter.
So What's Behind the Sluggish Sales?
We know that this sluggishness is unexpected at best, but when we look at the entirety of the situation, some possibilities emerge. One, there's the possibility that Black Friday is not what it once was. We've already seen how online and mail-order sales are up against this time last year, and posted similar results a month prior.
We've also seen how Black Friday, in general, doesn't mean what it once did; who hasn't heard an ad for “Black Friday Week” sales, or for “extended Black Friday sales” coming from someone? Anecdotally, the average shopper does seem less than impressed; one comment at Marketwatch suggested that previous deals of 50-70% off, or buy-one-get-one (BOGO) deals were thin on the ground. Lackluster promotions certainly would contribute to a sluggish November.
We've also seen the fundamental nature of retail change in recent days. Look at the results from mall-heavy operations like Children's Place (NASDAQ: PLCE) and American Eagle (NYSE: AEO). While there are some bright spots in these returns, they're still well off their historical highs. Look at the gains seen from stores like Target (NYSE: TGT), which has seen exciting new prospects as it pushes small-format stores and improves its online focus.
Thus, what ultimately may be happening is a sea change for the nature of retail itself. While shoppers are still clearly hungry for deals, they want to see these deals year-round, not just one particular morning. Sure, there are still shoppers out there who traditionally tackle the Black Friday sales, but there are just as many who'd rather stay inside, warm and dry, shopping from an online device that will bring their presents-to-be right to their houses, in some cases, gift-wrapped already.
That's a change that may impact Novembers to come as well and one that will leave retailers scrambling to find their footing in a new and uncertain future.