Consultant Insight: Strong retail sales continued in September, but how much longer can it last?

U.S. retail sales remained strong in September, up 0.7% year over year, according to data from the U.S. Commerce Department, despite supply chain delays. Year-to-date retail sales are up 19.0% YoY. Clothing and accessories stores are reporting a stronger growth year as more people return to work and are shopping in-store. Sales increased 1.1% last month from August and were up 22.4% YoY. General merchandise stores also are continuing their streak, increasing 1.9% from August and 17.7% from September 2020. [caption id="attachment_96737" align="alignright" width="345"] © Can Stock Photo / McIninch[/caption] But, how much longer will consumers continue to spend if virtual and in-store shelves are sparsely stocked? Photos of empty shelves from various stores are popping up across social media — all due to supply-chain delays. Among the contributing factors for the delays are: ocean container shortages, sporadic outbreaks of COVID-19 at Asian ports, airports and manufacturing facilities, backups at ports and labor shortages throughout the supply chain. Warehousing space is at a premium, confirmed Hamid R. Moghadam, CEO of property management firm Prolongis, in an Oct. 15 earnings announcement . "With vacancies at unprecedented lows, space in our markets is effectively sold out," he said. Some retailers have shifted cargo that is typically transported by ocean to air to avoid port delays. “We are spending money on airfreight to compete in the back half so that we have the right inventory here to be able to continue our market share grab in the back half of the year,” Katrina O’Connell, CFO of retailer Gap, said during a recent analyst call. Retailer Urban Outfitters also began using airfreight to avoid port delays. “On the apparel side of things, we are bringing a lot of, or most of, our product now by air to try to offset the port congestions, the shipping charges on ocean and the lack of containers,” Richard Hayne, CEO of Urban Outfitters, told analysts. “That’s all going to impact margins, but we believe that bringing the inventory in as quickly as we can is the most prudent thing to do right now.” However, for some retailers, such as Dollar Tree, air cargo is not an option. “At a $1 price point, unfortunately, airfreight just is cost-prohibitive and there really isn't that much of it available out there,” CEO Mike Witynski said on the company’s recent earnings call. Instead, the company announced it was chartering ocean vessels. The higher transportation rates and surcharges are adding up, regardless of the transportation mode, and are factored into higher prices that consumers pay. The September consumer price index (CPI), which measures the cost of various goods and services, increased 0.4% on a seasonally adjusted basis after rising 0.3% in August, according to the U.S. Bureau of Labor Statistics. The indexes for food and shelter contributed to more than half of the monthly all items seasonally adjusted increase. Over the last 12 months, all items on the index increased 5.4% before seasonal adjustment. The good times may soon come to an end because of supply chain disruptions and rising costs. The University of Michigan’s Consumer Sentiment Index, which measures consumers’ willingness to spend on goods and service, dropped to 71.4 in October from 72.8 in September, the second-lowest level since 2011. The Index stood at 101.0 in February 2020, before the Covid-19 pandemic hit the U.S.

Consultant Insight: Strong retail sales continued in September, but how much longer can it last?

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