Workplace Insights
August 17, 2018

Retail Beats Expectations, Heads Toward Strong Third Quarter

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Warm weather, improving consumer confidence, strong sales, and increased manufacturing output have all contributed to a robust second quarter for American retail sales. At this rate, all signs seem to indicate strong retail numbers heading into the third quarter. These numbers arrive at a time when traditionally, retail sales are a bit slower during summer months.

That’s good news for retailers who are already thinking about ‘back to school,’ one of the biggest retail holidays all year.

Thanks in part to tax reforms, and slight wage gains -- the National Retail Federation raised its forecast for retail sales earlier this week, predicting a climb of 4.5 percent, compared to previous expectations hovering around 3.8 percent.

According to CNBC, “United States retail sales rose more than expected in July as households boosted purchases of motor vehicles and clothing, suggesting the economy remained strong early in the third quarter.”

Previous estimates pinned retail sales going up a miniscule 0.1 percent in July. Instead, retail sales surged 6.4 percent from last year.


"Higher wages, gains in disposable income, a strong job market and record-high household net worth have all set the stage for very robust growth in the nation's consumer-driven economy," NRF President and CEO Matthew Shaw said this week. "We knew this would be a good year, but it's turning out to be even better than expected."

Strong retail results were not relegated to the American marketplace. Equally strong results surprised England following warm summer temperatures and the recent World Cup.

Below is a projection of what retail sales look like compared to last year.


And, while the current narrative arc for retail is suprisingly upbeat and exciting, we have the looming tariff issue and consumer spending could take a slight hit. The one positive heading into the back-to-school season is that retailers have already identified product for the holiday surge, and those goods are current in transit or stored in warehouse faciliites. If anything, the NRF global report says retailers are rushing to bring goods into the U.S. before issues with tariffs are set in place.

So, why are the retail numbers so positive?

Here's a look at a variety of reasons that have helped bolstered strong sales over the previous quarter. Also, keep in mind that while the narrative is upbeat, department stores are still doing 'alright' but the Prime Effect of Amazon's Prime Day were not that massive of a spike.

💵⬆️GDP Rises. The GDP almost doubled its first quarter results, up to 4.1 percent through June.
🚗Car sales driving forward. Auto sales grew 0.2 percent.
👗Clothing sales. Sales at clothing retailers rose -- and rebounded, 1.3 percent after a 1.6 percent fall last month.
📬You’ve got (online mail). American online mail ordering rose 0.8 percent, likely helped in part by Amazon's Prime Day.
🍸Happy hours. Americans famously looked to save money during the recession by abstaining from eating out, but there’s signs that trend has changed. Americans spent more at pubs and restaurants helpig lift sales by 1.3 percent.
📈Productivity up. Worker productivity continued to grow at the fastest pace in more than years.

Retail’s Big Names Report Earnings Success

This week was really big for the overall retail industry. A number of major retailers announced earnings that have added insight into the significant retail sales increases reported this week.

Walmart and Home Depot both crushed earnings expectations.

Yesterday, Walmart made history with best U.S. comparables in the last decade. Shares rose more than 10 percent thanks in part to strengthened focus on the grocery and apparel business along with strategic partnerships with Kroger.



Stocks continue to rise on strong Walmart earnings and thawing trade relations between the U.S. and China

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News of the strong sales sent Walmart stock soaring, and now the Walton family's fortunes is reportedly worth around $163 billion.

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The world's wealthiest family just got $11.6 billion richer thanks to Walmart's strong earnings #tictocnews

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Another retailer, Home Depot also announced historic results this week.

Showing that Americans are remodeling, Home Depot announced the 'highest quarterly sales and net earnings' in company history.

After a dismal first quarter, these results are signs of an American housing market in need of repair. In fact, part of this quarter's success was on the heels of an exceedingly strong 'pro segment.' According to a senior executive, while pros account for just 3% of the customer base of Home Depot, they make up 45% of the sales. The store also seemed to be finally seeing the results of their inter-connected retail strategy, combining the worlds of offline and online sales. If you've been to a store lately, you'll notice that product is much easier to locate and indidviudal stores are taking advantage of online ordering.

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