Strong Retail Sales Setting Up for 2017 Holiday Season

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Is it possible that the traditional brick-and-mortar retail stores finally will not have a disappointing holiday spending cycle at the end of 2017? The chipping away by Amazon has been relentless, but maybe it is possible that nothing lasts forever.

24/7 Wall St. has tracked multiple indicators showing strong retail spending trends. That also likely means Amazon is going to have a great quarter as well, but maybe good old-fashioned retail spending can hang in there this year. Three different sources of data have been used, which means that the expectations could change handily between now and the end of the year if there are any material changes in the economy.

Last Friday’s advance retail sales were projected to be up 1.6% on a seasonally adjusted basis in September. The U.S. Department of Commerce’s official figures include online platform sales. Still, much of the impact appeared to be tied to hurricanes Harvey and Irma, with vehicles and auto parts sales up 3.6% in September. Excluding auto sales, the rise was 1.0%, versus a 0.8% gain expected by The Wall Street Journal. And if you back out gasoline and auto sales on a seasonally adjusted basis, September’s gain of 0.5% beat the 0.1% gain in August.

Even at the end of September, Retail Metrics showed that retail spending is in recovery with optimistic sales forecasts for the ever-important upcoming holiday season. Retail hiring trends also look positive compared with 2016. This is what should stand out: this is projected to be the most favorable macroeconomic climate since the Great Recession.

Retail metrics also showed stronger growth projections for this holiday retail sales that Deloitte, Alix Partners, Retail Next and ICSC. Kantar Retail and eMarketer are two forecasting firms that are calling for slower growth in 2017 compared with 2016.

Bank of America Merrill Lynch’s team also points toward strong retail sales on an ex-auto basis. The report is based on actual in-house credit card processing data from its own credit card and debit card transactions. This level increased 1.0% month over month in September on a seasonally adjusted basis, versus a flat reading in August.

There are some issues to consider here in the Merrill Lynch views. One is that much of the September gain was tied to a surge in spending at gasoline stations. This was said to be largely a function of hurricanes Harvey and Irma, coupled with an increase in demand for gasoline as people were relocating to find safety from Hurricane Irma.

After backing out the gasoline station sales, Merrill Lynch showed that retail sales excluding autos and gasoline still rose by 0.3% month over month on a seasonally adjusted basis, and that is even considering that Florida, Georgia and South Carolina showed a hurricane-induced net decline in spending in the region.

Economists can see just how much of a snapback can be expected after major storms here. Merrill Lynch said that there was a strong 4.4% gain in Houston, more than offsetting a 3.9% drop in August.

Before thinking that Amazon and e-tailing is set to suffer, note that Retail Metrics did show that other forecasting forms are calling for major e-commerce growth in 2017. Deloitte was shown as the most robust growth forecast with a 19.5% estimate. That was followed by 16.6% from eMarketer, 16% from Kantar Retail and 14.9% from Retail Next.

It is hard to automatically trust that retail sales are going to see strong numbers in the holiday season of 2017 after years of seeing Amazon and other e-commerce efforts eat away at brick-and-mortar retailers. That said, companies have had a long time to adapt their models now and it seems like there may be no excuses for companies that are failing in their internal online sales efforts. After all, the rise of Amazon and other e-tailers has been taking place for two decades now.

Stay tuned.