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Does the September Retail Uptick Hint at Smooth Holiday Sales?

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Despite lingering fears of the Delta variant of coronavirus and festering supply chain issues, U.S. retail sales grew for the second straight month in September. This unexpected increase defies concerns related to slowdown in consumption activity. Pent-up savings and rising wages acted as tailwinds for the uptick in retail sales. With more people returning to work and students heading back to school and colleges, demand remained quite strong. No doubt, there is willingness among consumers to spend.

The Commerce Department stated that U.S. retail and food services sales in September rose 0.7% sequentially to $625.4 billion, following a revised reading of 0.9% jump in August. Demand for big-ticket items and goods was healthy, as consumer preference shifted away from services. Markedly, sales rose across most of the categories during the month, thanks to solid demand and to an extent increase in prices. We note that the consumer-price index advanced 0.4% on a month-over-month basis in September.

Sales results for the month of September caught most analysts by surprise, who were expecting a pullback in consumer spending activity amid higher inflation. NRF President and CEO Matthew Shay said, “Despite persistent challenges related to the global pandemic, supply chain and labor shortages, retailers and their partners have shown resilience and ingenuity in getting the workforce, goods and systems in place to serve their customers and the communities where they operate.”

Let's take a look at category-wise sales on a month-over-month basis.

U.S. Census BureauImage Source: U.S. Census Bureau

Markedly, U.S. retail sales climbed 13.9% from September last year. Sales at clothing & clothing accessories stores and food services & drinking places surged 22.4% and 29.5% year over year, respectively. Meanwhile, receipts at gasoline stations jumped 1.8% sequentially and 38.2% on a year-on-year basis owing to higher gas prices.

Wrapping Up

Surge in retail sales is a positive indicator ahead of the holiday season, especially when the industry is currently dealing with supply chain woes, rising freight charges and labor shortages. Evidently, retailers need to address any logistical or inventory issues and roll out strategies to provide a seamless shopping experience, whether offline or online.

With global supply chains in disarray, retailers are ensuring they stock enough to fulfill predicted consumer demand. Retailers such as Walmart (WMT - Free Report) , Kohl's Corporation (KSS - Free Report) , DICK’S Sporting Goods (DKS - Free Report) , Kroger (KR - Free Report) and Macy’s (M - Free Report) have even ramped up hiring to make sure that they are adequately staffed to deal with curbside and in-store pickup of online purchases as well as doorstep delivery. Some retailers have even kicked-off holiday deals earlier this year.

The industry players are rapidly embracing the “buy now, pay later” model to entice shoppers amid higher retail prices. According to Salesforce, U.S. retailers are likely to witness an additional $223 billion in costs of goods sold this holiday season, which include year-over-year increase in freight, manufacturing and labor costs.

Challenges might persist but retailers are finding innovative ways to make the most of the season. Deloitte envisions holiday sales between $1.28 trillion and $1.3 trillion, which suggests an increase of 7-9% during the November-January period. Meanwhile, e-commerce sales are estimated to improve 11-15% to reach $210-$218 billion, per the consultancy firm.