As the global economy grapples with concerns over rising inflation, a recent report by Commerce Signals provides encouraging news about discretionary spending. Despite consumer fears and uncertainties surrounding inflation, discretionary spending levels remained buoyant throughout 2022 and have continued to rise in the early months of 2023. This upward trend in discretionary spending is an optimistic sign for the economy and the retail industry. However, the growth in spending has not been uniform across all sectors, as highlighted by Commerce Signals' research. Let's look at the key takeaways and insights from the report.
Growth and Disparities in Retail Sales:
According to the research, total brick-and-mortar store sales have increased by 6.4% in 2023, outpacing online sales growth, which stood at 4.4%. Among the standout performers, clothing retailers experienced a 6.3% increase in purchase dollars, while department stores saw a 6.0% rise. Notably, dollar spending at department stores has risen 7.2% year-to-date, compared to a modest 4.1% increase for online store purchases.
Diverse Sector Performance:
Commerce Signals' research reveals that discretionary spending growth has been uneven across sectors. The travel industry, in particular, has witnessed remarkable gains, with a 34.5% year-over-year increase in dollar spending during January and February 2023. Similarly, apparel retailers have seen a positive trend with a 6.3% rise in purchases, while department stores experienced a 6.0% increase in spending during the same period.
Contrasting Trends in Electronics:
Despite a 10.4% rise in the number of transactions, electronics stores experienced a decline of 2.6% in dollar spending in January and February 2023. This decline can be attributed to a decrease in big-ticket purchases, such as computers, and a shift towards more affordable options like gaming. Notably, Best Buy, the largest pure retailer in the electronics category, reported a 19% drop in purchase dollars, while transactions decreased by only 5.3%. Interestingly, Best Buy's in-store sales outperformed its online sales.
Factors Influencing Spending Patterns:
According to Nick Mangiapane, the Chief Marketing Officer and Head of Partnerships at Commerce Signals, notable trends impact spending patterns. Travel-related categories like airlines, hotels, and rental cars continue to see robust spending. On the other hand, home-based categories, including home stores, furniture stores, and electronics, have experienced less favorable performance. These trends are expected to persist in the near future.
Forecasted Retail Sales Growth:
The report data indicates an overall growth rate of 5.5% to 5.6% in retail spending for 2023. This forecast aligns with the National Retail Federation's predictions of a 4% to 6% growth range for the year. Despite concerns about inflation, the steady growth in retail sales suggests that consumers are still willing to spend on discretionary items, albeit with some variations across sectors.
Despite inflation concerns, discretionary spending has shown resilience and has even exhibited growth in 2023. The Commerce Signals report indicates positive trends in brick-and-mortar retail sales, outperforming online sales growth. While the travel industry, apparel retailers, and department stores have experienced notable increases, the electronics sector has faced challenges due to changing consumer preferences. The contrasting performance across sectors underscores the need for businesses to adapt and cater to evolving consumer demands. As the year progresses, monitoring how these spending patterns evolve in response to market dynamics and consumer sentiment will be interesting.