Retail Sales Rise – Coronavirus Alert 25

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Macy's watch shoppers BC

From the department of quick statistics: retail sales were up 18% in May month-to-month. This retail sales rise surprised all the forecaster who’d forecasted half that increase. While the retail sales rise is good news for everyone who has an interest in the economy getting back to normal (all of us), is it really evidence that the long-awaited watch buying revenge buying wave is here? . . .

First, let’s stop cherry-picking data and look at what’s really going on.

We knew we’d see a rebound from April to May as parts of the country loosened their lockdowns and stores opened up again – it was inevitable. However, month-over-month comparisons in a vacuum are useless. This graphic from The Wall Street Journal is instructive:

Pay attention to the light blue bars; those are the year-over-year numbers. The truth of the matter is that we’re nowhere near where we were last year in most categories. A “rebound” from absolutely miserable April numbers is encouraging but not proof that we’re out of the woods.

This is an important point. The entire concept of “pent-up demand” is that people delay their purchases. Pent-up demand means that May would have made up for April’s decrease. And that’s not happening.

Retail sales rise like a wedding cake?

An increase month-over-month but not year-over-year isn’t pent-up demand, it’s just demand coming back, slowly and carefully. It’s looking more and more likely that the predicted wage of revenge buying just ain’t.

The other point to consider: the headline number is all retail sales. That big number can hide a lot of variation in the different retail sectors. It could be that the type of spending is shifting. Well glory be, that’s exactly what’s happening:

People are spending again, yes, but not in the same places. They’re working on their homes, or buying food at stores, or paying off debt. They’re not running out to buy the luxury goods they couldn’t get in March and April. Counter-intuitively, this is especially true for wealthy Americans, where high end watch sales live. Or die. From npr.org:

Researchers based at Harvard have been tracking spending patterns using credit card data. They found that people at the bottom of the income ladder are now spending nearly as much as they did before the coronavirus pandemic.

“When the stimulus checks went out, you see that spending by lower-income households went up a lot,” said Nathan Hendren, a Harvard economist and co-founder of the Opportunity Insights research team.

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However, the wealthy are not matching them. “For higher-income individuals, that spending is still way far off from where it was prior to COVID and it has not recovered as much,” Hendren said.

The luxury goods sector of the economy isn’t following the V-shaped recovery that some other sectors have seen. That augurs for continued watch manufacturer and retailer pain throughout the summer and into the all-important holiday selling season.

The worst case? Not exactly dogs and cats living together but a semi-permanent shift away from luxury goods in general and watches in particular.  It’s not impossible: the industry certainly isn’t acting like Coronageddon is just a temporary blip. That would mean a reckoning everywhere – supply chain, manufacturing, retailers.

We knew this. And now you do too.

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