U.S. retail and food services sales for October 2023 were down 0.1% compared to September (seasonally adjusted). Consumers pulled their spending back slightly in anticipation of better promotions in November and December. According to the U.S. Bureau of Labor Statistics, the Consumer Price Index for All Urban Consumers was unchanged in October on a seasonally adjusted basis after increasing 0.4 percent in September, showing a cooling off of inflation for the month.
While consumers are optimistic about the holiday shopping season, inflation is still a concern despite recent news of stagnant price increases in October. Price and value are key factors, with 64% of surveyed consumers stating this will influence where to shop over Thanksgiving weekend, according to survey data from ICSC’s 2023 Thanksgiving Weekend Intentions survey. Nearly 50% of respondents plan to rely more on social media and apps this year to find discounts, and 7 out of 10 consumers plan to use promotions to stock up on everyday items.
Retail Inventories Under Last Year
Retail inventories were up 5.3% over the previous year from January through April 2023. Still, these levels have come down over the course of the year as retailers work to reduce their assortments and total inventory holdings. In September, inventory levels were down slightly from last year, while sales were up 3.5% for the month. Retailers are getting ready for the busiest time of year, and the lower inventory position can help retailers with bottom-line profits. Still, it could be a disadvantage if key items for a holiday sell out. While promotions will be given throughout the season, less inventory on hand means that retailers may not offer discounts as steep as in the previous year when inventories were 15% above 2021 levels for October, November, and December.
Physical Retail Footfall Down
Shopper traffic was down in physical retail stores by 3.7% compared to last year in October. Retailers, however, experienced a 1.6% higher spending per transaction, with the average unit retail up 4.1%. “Two months in a row, we saw retail foot traffic dip (-3.7% YoY decline in October matching September’s data), but this is to be expected given the economy is in a different shape than in 2022. Morgan Stanley recently released a report stating that 69% of consumers said they are waiting to see discounts before they begin holiday shopping, which appears to be holding true,” said Joe Shasteen, global manager of advanced analytics at RetailNext. “As retailers prepare for their busiest, make-or-break season, we’ll see more targeting budget-conscious consumers to drive traffic and sales. Soon, we’ll find out if that’ll pay off.”
Apparel and jewelry were the only categories to improve their performance in September. Jewelry trends were also positive for October, the only segment to have a positive year-over-year (YoY) result. Conversely, health and beauty, which was positive in August, returned to a YoY negative trend, decreasing by 1.3% for October, while footwear showed a 7% decline as we move farther away from back-to-school season. Traffic in the western region was down 5.2%, while the rest of the country ranged from a 2.8% decrease to a 3.6% decrease in shopper visits.
Retail Sales Up 2.7% Compared To Last Year
Total retail sales were up 2.7% for October compared to last year (not seasonally adjusted). Nonstore sales (including e-commerce) were up 10.4%, primarily driven by Amazon Prime Days, outperforming last year’s event. Other retailers like Walmart, Target, Wayfair, Best Buy, and specialty retailers competed with Prime Days by offering Black Friday sales early and other online promotions.
Restaurants and bars sales were up 7.8% for the month, and discount stores were up 2.0%. Department stores continued to struggle, with sales down 6.2%, the most significant decline of the year. Home and furniture sales were down 11.6%, possibly attributable to September’s 2% decrease in home sales, the fourth consecutive month of declines. According to the National Association of Realtors (NAR), all four major U.S. housing market regions posted declines.
Inflation Cools Heading Into 2024
The Consumer Price Index showed an increase of 3.2% for all items for the last 12 months, which is smaller than the 3.7% increase for the 12 months ending September, a sign that inflation is cooling down. “As expected, year-on-year headline inflation fell from 3.7% in September to 3.2% in October on the back of a 2.5% decline in energy prices,” said Shawn Snyder, Global Investment Strategist for J.P. Morgan Wealth Management. The impact on consumer spending is uncertain as inflation continues to drift downward. “The key question moving forward is whether this downtrend in inflation will be accompanied by slowing economic growth,” said Snyder. “Early indicators seem to suggest that growth will moderate towards the end of the year and into early 2024.”