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Retail Sales Grew In July. Could Delta Change That In The Months To Come?

There were healthy signs for the back to school shopping season and beyond during July. The National Retail Federation says retail sales grew 9.5% last month compared to a year ago. But the NRF’s calculation of retail sales – which excludes automobile dealers, gas stations and restaurants – shows sales were down 1.1% from June.

“Despite this monthly dip, the economy has rebounded quite well and is more than just on the mend,” said NRF Chief Economist Jack Kleinhenz said. “The consumer has continued to be resilient and recent price increases brought on by constraints in the supply chain have not dampened the robust demand seen during the past year. If retailers could find more inventory, they could sell it.”

The government’s July numbers that include all retail sales showed a 15.8% year-over-year increase.

NRF says the increase in vaccination rates has allowed consumers to shift some spending from goods to activities like going out to dinner and traveling, despite the growth of the Delta variant. Even so, NRF acknowledges rising infection rates and new government restrictions will hang over the retail sector.

“Going forward, consumers are a bit fearful again as we approach another possible wave of COVID-19 infections, but they’ve learned to live with the virus and shopping continues,” said Kleinhenz. “The Delta variant could impact local markets, especially where vaccination rates are low, but doesn’t appear likely to show up in the national data.”

Retailers Are Cautious

Macy’s CEO Jeff Gennette said last week that he has not seen any impact from the Delta variant on the department store chain’s business yet, and that clothing sales have been strong. “We saw enthusiasm for newness with a pent-up desire to feel fresh and look current at gatherings and occasions in school and on social media,” he said on a conference call.

Yet other retailers have said they have seen business slow slightly in recent weeks, in part because many businesses are delaying a return to the office. Scott Goldenberg, CFO of TJ Maxx and Marshalls parent TJX, said on an earnings call that even though they “had seen a slowdown” their sales “are still very strong” this summer. “While we're not planning for overall store closures in the third quarter to be significant, sales could also be negatively impacted if new COVID-related regulations are put in place,” said Goldenberg.

How customers are buying is also a factor. Kohl’s said despite a record quarter, digital sales dropped 14% during the second quarter compared to a year ago when its stores were closed. “Several areas of our business benefit from kids returning to school and students going back to college,” said CEO Michelle Gass.

Even so, CFO Jill Timm said there’s no way to tell how the pandemic will impact consumer spending. “There's a heightened level of uncertainty as we look to the back half of the year with the Delta variant,” she said on a conference call.

NRF Still Bullish On 2021

Even with that unclear outlook, the NRF still thinks 2021 will be a record year for retailers. It is anticipating that retail sales will now grow between 10.5% and 13.5% as the economy accelerates its pace of recovery. NRF says advanced tax credit payments and strong gains in the labor market and personal incomes should help retail sales momentum remain strong heading into the holiday shopping season.

“Though the Delta variant is presenting health challenges while supply chain disruptions along with unfilled job openings are presenting business challenges, the consumer and broader economy continue to display steady strength,” said NRF President Matthew Shay. “We remain optimistic that the strength of the American consumer and ingenuity of the retail industry will produce continued growth heading into the fall. We encourage people to get vaccinated as soon as possible to stop the spread of the virus and to keep our economy growing.”

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