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U.S. retail sales down for third month in a row

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Yahoo Finance’s Alexis Christoforous and Deborah Weinswig, Coresight Research Founder & CEO, discuss what the latest retail sales numbers mean for the sector.

Video Transcript

ALEXIS CHRISTOFOROUS: Proof today that consumers cut back their spending at the height of the holiday season, just as COVID-19 cases were surging. The Commerce Department today said that retail sales fell 7/10 of a percent in December. That is the third consecutive month of declines. On top of that, we saw November retail sales revised downward to a 1.4% drop there.

Joining me now is Deborah Weinswig. She is CEO and founder of Coresight Research. Deborah, always good to see you. How would you characterize today's retail sales report?

DEBORAH WEINSWIG: I mean, I think it's-- actually, if you look at the whole quarter, I mean, we're talking not-- you know, pretty significant growth over the holiday season. And we actually strip out auto, gas, and food services. And that gives a much rosier picture, if you will, in terms of 8.7% growth. We ourselves had only at Coresight been expecting a 5% increase for the holiday quarter. And once again, if you strip out everything, it was up 9.1%. I mean, our estimate was one of the highest on the Street, so I have to assume people are pretty excited with the results that were delivered.

ALEXIS CHRISTOFOROUS: All right, let's work our way through this report and look at the positives and negatives. Where did where did we see strength? I guess home improvement, right-- we continue to spend on our homes and beautifying the space that we're spending a heck of a lot more time in during this pandemic. And also I think we saw a bounce back in clothing retail, right?

DEBORAH WEINSWIG: We did. We shockingly did. Clothing stores rebounded slightly from the previous month, right-- up 2.4% month-over-month-- once again, as it's getting colder, et cetera. You know, that definitely was a positive. On the negative side, general merchandise store sales were weak. Most of this lackluster growth really attributable to the unfortunate decline, continued decline of the department stores, which were down 21.4% year-over-year and down 3.8% month-on-month. That was actually-- that to me is an acceleration of a trend.

ALEXIS CHRISTOFOROUS: Talk to me more about that trend for the rest of the year. Do you think it's going to last?

DEBORAH WEINSWIG: You know, I think that what we're seeing, it's quite interesting, is consumers-- and it kind of speaks to the strength in the clothing stores-- we continue to see them starting to really migrate to brands and this idea of direct a consumer, but also brands having their own personality and say they're looking to buy the brands from the branded store as opposed to the department store.

And once again, as we're seeing kind of a pickup in open air centers, strip, outlet, this idea that those tend to be a bit more brand than department stores. It also is a conversation to be had around geography in terms of where stores are located and what types of centers they're located in as well.

ALEXIS CHRISTOFOROUS: You know, I guess it's no surprise that we saw pretty healthy spending on health and wellness-- I guess 5.8% year-over-year growth, 1.1% month-over-month. Is that something you believe we'll continue to see here throughout the rest of the year?

DEBORAH WEINSWIG: I think that we are-- yes, numbers are very healthy. I think we could even see an additional kind of gain, because consumers have been focusing on vitamins, and kind of yoga pants, and whatnot. But we're starting to see more around-- I mean, I've had three conversations today already around, like, biohacking and neurohacking-- and so how can they take better care of themselves for longevity.

And what is it that they can purchase, right, to do that? And so I think we're going to see a continuation. It's not just-- it's apparel, it's supplements, but also, we're seeing anything that you can do fitness at home and fitness outside as well. So there's one other point I think we should address too is that there was a decline, right, in terms of online sales in terms of the growth-- that was 19.2% in December down from 26.3% increase in November.

We actually had expected that to be even a bit more sluggish because of some of the challenges in the supply chain, right, with retailers being able to deliver. So number one, I think it shows just how far all these retailers came in 2020 around their supply chains. And then secondly, we also saw a significant growth in buy online, pick up in store, buy online, pick up in mall-- retailers utilizing their stores as fulfillment centers. So for a sector that duct tape and glued, you know, 2020, the performance truly was amazing, both online and offline.

ALEXIS CHRISTOFOROUS: I want to ask you about the personal savings rate, which it continues to be very high-- 12.9%, I think, in November. That's the last number that we have. Do you think that the fact that consumers are socking away more money could actually in the long term be a tailwind for consumer spending in the months ahead?

DEBORAH WEINSWIG: It's interesting you say that-- we were just kind of going through our analysis in terms of as we move into the back half of the year, and consumers are potentially traveling more, as we look at the data in terms of bookings, eating out more, et cetera. And what better way to kind of go on vacation or go out to eat than to go out and buy something new to look great in as well in a post on Instagram or whatever your kind of social media is of choice.

So I think that it's absolutely a tailwind. And we are seeing-- now, the one kind of factor that could mitigate that is we are seeing retailers being very conservative on inventories as they are-- especially global retailers who are seeing kind of unfortunate closures throughout most of Europe right now. So we do expect-- and it's what we saw in 2020 which was higher margin sales, because inventories were tight, and sales, I would say for the most part, exceeded plan.

We think that could happen again in '21 so that profitability remains high. Retailers have had to spend on hero pay and also different accommodations in the current environment. But we do think that as we go into the back half of the year, it can also be much more profitable-- exactly to your point.

ALEXIS CHRISTOFOROUS: All right, great insights, Deborah Weinswig of Coresight Research. Thanks, and enjoy your weekend.

DEBORAH WEINSWIG: Thanks so much. You too.