Retail spending slows as inflation starts to bite
After beginning the year in a buying mood, Americans slowed their spending in February on gadgets, home furnishings and other discretionary items as higher prices for food, gasoline, and shelter are taking a bigger bite out of their wallet.
Retail sales increased 0.3% after registering a revised 4.9% jump from December to January, fueled by wage gains, solid hiring and more money in banking accounts, according to the Commerce Department. January’s increase was the biggest jump in spending since last March, when American households received a final federal stimulus check of $1,400.
Business at furniture and home furnishing stores fell 1% in February, while sales at consumer electronics and appliance stores slipped 0.6%. General merchandise stores saw business down 0.2%, while online sales fell 3.7%. Restaurant sales rose 2.5% as shoppers shift more of their spending to services as the threat of COVID-19 fades.
And there are new pressures that could send prices even higher, namely the Russian invasion of Ukraine. Most Western companies including retailers like Nike, fast-fashion retailer H&M, and coat maker Canada Goose have suspended sales in Russia after Russia sent tank columns toward the capital of Kyiv and heavily shelled the southern seaport of Mariupol and other urban centers.
Many retailers are bracing for how the war will worsen supply shortages, with reports already surfacing of limited supplies of wheat, vegetable oils, and electronic components like chips that will likely send prices higher. In addition to the Russian invasion, rising COVID-19 cases and renewed restrictions in China could intensify supply
chain issues.
“The problem is that as households get more and more squeezed on essentials, there is less budget available for discretionary spending,” said Neil Saunders, managing director at GlobalData Retail. “True, there is an elevated buffer of savings which consumers can call upon to fund their consumption, but this is a short-term fix in an environment where inflation is becoming a persistent problem.”
Saunders noted that such persistent inflation is dangerous for retailers because it will mean shoppers will once again consolidate their spending and spread it to just a few players, reversing the trend where many retailers in the last
year or so saw their sales increase. Walmart executives told analysts in February that the chain often benefits during periods of inflation like this one where, middle-income families, lower middle-income families and even wealthier families become more price sensitive.
And many retailers have acknowledged that a prolonged war could hurt shopper confidence.
“I think we’re prepared that there’s going to be an environment of a lot of uncertainty,” Kohl’s CEO Michelle Gass told analysts during its earnings call in response to a question about how the war could affect its business. “So like everyone, we’ll stay close. We’ll be responsive.” 261.00