Retail

Retailers Begin 2022 on a Strong Note as Shoppers Ramp Up Spending

• Consumers step forward in January. After an early holiday shopping season led to a quieter than normal December, retail spending bounced back last month. Several sectors recorded strong gains, though online retailers and furniture stores posted the largest month-over-month increases at 7.2 percent and 14.5 percent, respectively.
• Retail fundamentals to approach pre-COVID-19 levels this year. By the end of 2022, retail vacancy is anticipated to fall to 5.0 percent, only 10 basis points above the rate at the beginning of the recession. The downturn finally pushed many struggling retailers over the edge, but new businesses are rising in their place.
• Tailwinds for some traditional retailers. The rapidly declining case counts are going to encourage more shoppers to visit general brick and mortar locations in the months ahead. This is especially true for eating and drinking places, which recorded a 0.9 percent decrease in sales month-over-month in January.

True Spending Gains are Cloudy

• Inflation masks actual increase in sales. The consumer price index jumped 7.5 percent on an annual basis last month, largely overstating the increase in retail sales over the past year. A few components are the primary cause of the rise, including gasoline, autos and groceries.
• Broader global reopening could provide lift to spending. Several areas of the world are reducing their restrictions, which should raise sales over the next several months.

*Through January; pre-recession is as of February 2020
Sources: Marcus & Millichap Research Services; Bureau of Labor Statistics; CoStar Group, Inc.; U.S. Census Bureau

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Retail Sales Have Tailwinds Heading into 2022 Despite Soft End to 2021

• Consumers step back in December. Core retail sales dipped 2.5 percent last month as spending that usually occurs closer to the holidays was spread over a longer shopping season.
• Shift in holiday plans impact retail sales. The rapid spread of COVID-19 last month altered travel schedules for a sizable portion of the population. Family visits and vacations were put on hold, which eroded spending.
• Seasonal challenges account for soft spending performance. Fewer people are generally able to move during the holiday season, which contributed to a decrease in some sectors.

Outlook Raises Questions This Year

• Key issues to watch in 2022. The largest threat to retail sales this year is inflation, which is nearly at a 40-year high.
• Labor market also presents challenges. Although 2021 marked a historic year in job growth and saw the unemployment rate decline to 3.9 percent, several questions on the overall strength of the market remain.

*Through December; savings deposits and money market funds through November.
Sources: Marcus & Millichap Research Services; Bureau of Labor Statistics; CoStar Group, Inc.; Federal Reserve; U.S. Census Bureau

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Pace of Spending Eases; Retail Real Estate in Good Shape Moving into 2022

• Retail sales continue to float well-above pre-pandemic levels. Consumers acted on holiday shopping plans earlier than normal, resulting in a more moderate improvement in retail spending last month than is typical for this time of year.
• Traditional retailers benefit from the return of shoppers. Over the past year, spending at store-based retailers has climbed 13.5 percent as foot traffic climbed across nearly all major sectors.
• Broader reopening highlighted in annual spending gains. As Americans leave their homes more often, some sectors have strong annual gains. Over the past year, retail sales at gasoline stations soared 52.3 percent, though some relief is materializing as the average price of a gallon of gas slipped by $0.07 to $3.31 from the beginning of November to mid-December.

Rising Prices Present Challenge

• Inflationary pressure creates headwinds. The consumer price index increased 6.9 percent year-over-year in November, the largest change in nearly 40 years, eroding spending power for consumers.
• Fed forced to act to contain rising prices. Among the Fed’s two mandates, maximum employment and price stability, the pace of inflation is a significant concern. As a result, the central bank will taper asset purchases faster than originally planned and start
  lifting interest rates.

Sources: Marcus & Millichap Research Services; Bureau of Labor Statistics; CoStar Group, Inc.; Placer.ai; U.S. Census Bureau; U.S. Energy Information Administration

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Retail Sales Remain Strong Despite More Shoppers Staying Indoors

• Consumer spending healthy in October. Core retail sales, which excludes gasoline and motor vehicles, rose 1.4 percent last month.
• Fear of COVID-19 does not deter consumers. Online spending climbed 4.0 percent last month as more people avoided crowds to prevent exposure to the delta variant.
• Brick-and-mortar retail fundamentals strong. In the third quarter, retail vacancy dipped 20 basis points to 5.3 percent, indicative that more shops are opening ahead of the holiday shopping season.

Sales Restrained by Headwinds

• Supply chain issues remain impediment to sales. Although the ports of Long Beach and Los Angeles have taken measures to increase the speed at which cargo ships move through the system, dozens of vessels remain anchored offshore and the average time to unload is still 17 days.
• Inflation concerns escalate. The rise in prices are increasingly looking like they are less transitory and are unlikely to decrease even when the annual gain returns to historically normal levels.

Sources: Marcus & Millichap Research Services; Bureau of Labor Statistics; CoStar Group, Inc.; U.S. Census Bureau; U.S. Energy Information Administration

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September Retail Sales Outperform as Foot Traffic Remains Elevated

• Consumer spending sturdy last month. Unfazed by the end of federal unemployment benefits and other dissipating stimulus, core retail sales increased 0.7 percent in September and 13.5
  percent from the same period last year.
• Strong sales support retail properties. Consumer spending supported brick-and-mortar retailers through the worst of the health crisis.
• Variants have minimal impact on dining out. Receipts at eating and drinking places increased 29.5 percent year over year, the second-highest annual rise after gasoline stations.

Temporary Headwinds Mount

• Supply chain issues threaten holiday sales. As global trade reopens unevenly, the carefully orchestrated supply lines that existed prior to the pandemic are having trouble returning to
  previous efficiency.
• Vaccine mandates cloud short-term outlook. Over the past several weeks an assortment of vaccine requirements, ranging from public to private and local to federal, have been enacted across the country.

*Through September
Sources: Marcus & Millichap Research Services; CoStar Group, Inc.; Placer.ai; U.S. Census Bureau

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