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US: Retail malaise more micro than macro – Goldman Sachs

08:46 23 May /2016 Forex

Research Team at Goldman Sachs, suggests that despite healthy US consumer spending in Q1, several iconic retailers reported disappointing same-store sales and revenues for the quarter.

Key Quotes

“After taking a detailed look at trends in the retail sector, we view the ongoing retail malaise as mainly a micro rather the macro story: department stores and other traditional retailers face many structural headwinds, and their weak sales very likely overstate the deceleration in consumer spending more broadly.

In part the weakness in retail sales through traditional channels reflects falling prices in the sector. After adjusting for retail price deflation, department store sales growth is still contracting, but growth rates are more closely correlated with changes in real PCE.

The secular weakness in sales for traditional retailers reflects an ongoing loss of consumer “wallet share”. First, consumer spending continues to shift towards services, including nondiscretionary services like healthcare and discretionary services like restaurant meals. Second, traditional retailers have lost market share to big box retailers over the last decade. Third, consumers now purchase many more goods online; changes in the mix of online spending have been particularly harmful for department and apparel stores.

Because of these structural headwinds, revenues of traditional retailers are much less useful barometers of US consumer health, at least taken in isolation. Today the performance of online stores and leisure and hospitality companies should be considered equally important bellwethers for cyclical changes in consumption.

Beyond retail, we do see some slowing in consumer spending from last year, likely due to the fading effects of the gasoline price windfall. However, consumer fundamentals remain solid, and we continue to look for above-trend consumption growth this year.”

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