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Consumer Spending Reaches Seven-Year High, But Where’s The Money Going?

  • Written by  Glenn Taylor
Consumer Spending Reaches Seven-Year High, But Where’s The Money Going?

National consumer spending posted its largest one-month jump since 2009, with personal spending totals increasing 1.0% in April, according to the U.S. Department of Commerce. The jump aligns with the Department’s earlier disclosure, that the retail sector also increased sales by 1.3% during this period.

However, these positive results clash with the disappointing Q1 filings of many of retail’s household names, suggesting that while shoppers are spending, they’re just not doing so in traditional outlets.

Shoppers Continue Online Spending, With Amazon Out In Front

Amazon has been the biggest beneficiary of the spending splurge, reeling in a 28% sales increase in the quarter. Online sales as a whole have surged 10.2% year-over-year, more than three times the rate of overall retail sales. With online shopping firmly entrenched among consumers and the personal savings rate (personal savings as a percentage of disposable income) dropping from 5.9% to 5.4% in April, there appears to be more room for specialty retailers and fast-fashion apparel retailers to capture the more confident spender’s eye with online offerings.

While the recent quarterly results have spotlighted the struggles of department stores and other traditional merchants, the writing has been on the wall for these retailers for months now. For example, poor holiday performances at merchants such as Macy’s and Neiman Marcus were attributed to unseasonably warm weather and the resulting decline in winter apparel sales.

Even prior to the holidays, the department store sector was taking hits with numerous factors being blamed, including:

  • Excess store inventory;

  • A greater shopper focus on entertainment and experiences; and

  • A decrease in mall-based traffic.

Department Store Execs Acknowledge Changing Spending Habits

With so many factors making an impact on consumer spending in the U.S., executives of the retailers losing market share are seeking answers to bring shoppers back their way.

“There is a lot of excess product out in the marketplace,” said Nordstrom co-president Erik Nordstrom in an interview with the Wall Street Journal. “It’s certainly easy to shop online. There is some heavy, heavy discounting going on, and we’re seeing that effect in our business.”

In a November 2015 interview with Bloomberg, Macy’s CEO Terry Lundgren recognized the phenomenon of spending that is bypassing traditional retailers, pointing out that despite consumers’ unwillingness to shop within a department store, they still appear to have a penchant for high-ticket items.

“It’s obviously troubling,” Lundgren said. “My sense is, if customers want to spend, they can. And once they’ve finished buying their cars and finished remodeling their houses, there’s room for them to spend in our categories as time goes on.”

Purchases of durable, long-lasting goods increased 2.2% in April, with the Department of Commerce noting that motor vehicles and parts accounted for most of the growth. With both Lowes and The Home Depot reporting increases in net income and total sales in Q1 2016, and automotive sales receiving a major boost throughout the period, Lundgren’s analysis appears to be very much the reality of modern consumer spending.

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