Reports: January retail sales rise 0.4%, analysts warn volatile year ahead

Dive Brief:

Core retail sales rose 0.4% in January, according to the U.S. Department of Commerce monthly retail sales report released Wednesday, which also included a revision upward of December sales, also to 0.4%. (Core sales are the best reflection of gross domestic product and exclude more volatile purchases like autos, fuel, building materials and restaurants.)
Overall retail sales in January rose 0.4% and in December were revised upward to 1%. Core retail plus food purchases rose 4.9% year over year, according to the report.
The NRF also released its monthly retail sales report on Wednesday and also found that retail sales grew 0.4%, seasonally adjusted from December, and 3.8% unadjusted year-over-year.

Dive Insight:

Things look good at first glance for the retail sector at the start of 2017.

“The retail industry started the year on a high note, continuing the momentum from the 2016 holiday season. The healthy monthly gain was driven by January’s strong payroll gains, retail employment gains and business sentiment,” NRF Chief Economist Jack Kleinhenz said in a statement. “We haven’t seen strong January growth in several years, which indicates that consumers are increasing their spending and remain the leading driver of the economy.”

But several analysts on Wednesday sought to rein in unfettered optimism after taking a deeper dive into the January sales numbers. While the month registered a solid gain over last January, it’s worth remembering that, thanks to uncooperative weather and other factors like the strong dollar, last year's sales were relatively subdued.

“We believe that there are few red flags hidden in the detail of the figures, many of which suggest that underlying performance, while reasonable, is not quite as robust as it first seems,” GlobalData Retail Managing Director Neil Saunders said in an email to Retail Dive. “Retailers would be advised to take heed of this as it indicates the sector is in for another choppy year.”

More worry comes from a look at individual retail sectors: Year over year, electronics and appliance sales fell 1.7%; furniture sales fell 0.3%; book, sporting goods and hobby sales fell 3.7%; and department store sales fell 5.6%. Lower-margin non-store (including e-commerce) sales rose 14.5%. Plus, the 13.9% sales rise at gas stations indicates that the era of low (and mostly falling) fuel prices is over. That means that, as consumers put more money into their gas tanks, they'll have less to put toward apparel and other retail purchases, Saunders said. "While we do not expect the declines to persist across the entire year, we do believe that continued uncertainty among shoppers will lead to a very changeable retail environment in which large purchases are carefully considered," he said.

Based on same-store sales or comparable sales from stores open at least a year, Retail Metrics President Ken Perkins said that retailers are poised to turn in their worst quarterly same-store sales growth since at least Q1 2013.

“Expectations for calendar Q4 comp growth have been slashed at a much higher rate over the last six weeks than we have seen in some time," Perkins warned in a note emailed to Retail Dive. "We have noted on numerous occasions that retail same-store sales growth has been mired in the low single-digits range for the better part of three years. Fourth quarter retail comps are now expected to increase just 0.3%, which would represent a down-side breakout. Over the last six-plus weeks, fourth-quarter comp expectations have been pared by 70 basis points as numerous retailers posted disappointing holiday sales results.”

Nine retail categories are projected to turn in negative fourth-quarter same-store sales results, according to Retail Metrics: entertainment/sporting goods (-4.7%), department stores (-3.4%), office (-2.6%), luxury (-1.3%), teen apparel (-1.1%), home furnishings (-0.3%), and consumer electronics (-0.1%). Wal-Mart Stores Inc. holds the largest weighting in the Retail Metrics index, accounting for some 27% of revenues; eliminating Wal-Mart’s disproportionate impact on the index, Retail Metrics analysts expect fourth-quarter same-store sales to decline by 10 basis points.