U.S. consumers are still shopping, a lot, but instead of spending their hard-earned dollars on fashion, other pursuits are emptying their wallets.
Total retail sales surpassed $5.5 trillion last year, a roughly 3 percent bump over 2015 and the highest rate of spending on record, according to the Census Bureau. But spending in apparel and accessories specialty stores accounted for just $257 billion of that, a gain of less than 1 percent over 2015 that was supported by increased sales of shoes and jewelry. Meanwhile, department store sales fell by close to 6 percent to $155 billion.
(Specialty stores continued to gain modestly in January as department stores weathered further declines. The early read from the major publicly held retailers was that sales were weak last month, but the early trend for 2017 will start to become more clear when the Census Bureau updates its sales reading with results for February today).
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It’s no secret that brick-and-mortar retail, especially of the mall and department store variety, is going through a reckoning, but the continued ascent of e-commerce isn’t wholly to blame for what appears to be a deeper move away from apparel.
Although online shopping did rise by 11.5 percent last year, driving $560.5 billion in consumer spending, people nevertheless opened their wallets widest and most often to maintain their cars, keep up their health, fix up their homes and purchase food, be it at a restaurant or on a trip to Whole Foods.
Spending at restaurants, for example, grew by about 6 percent to $659 billion last year and spending on health and personal care products grew by 7.4 percent to about $336 billion.
Taken together, these more practical areas of spending made away with close to 60 percent of all consumer spending in 2016 and may point to a fundamental shift in spending habits — away from looking good and toward feeling good.
The rise in spending on health and personal care struck Kit Yarrow, a consumer psychologist with Golden Gate University, as particularly “remarkable” and she doesn’t see spending tapering off anytime soon.
“This is not a blip, not a mini-trend,” Yarrow said. “Health and wellness has really become a do-it-yourself industry and the consumer had more options than ever last year. They seized it.”
Yarrow noted that, on the whole, the U.S. has an aging population that is very focused on longevity and “youthful health” and all of the generations below Baby Boomers (Gen X, Gen Y or Millennials, and Gen Z) were raised by parents and relatives that emphasized health and well-being as part and parcel to personal wealth.
Healthy longevity could well become the ultimate status symbol.
As for food, Yarrow said Millennials’ propensity for eating out and spending on high-end groceries is something that’s been on the rise for years, even immediately after the Great Recession.
“Food to Millennials is really important,” she added. “The psychological adventure of life happens on the plate, not the handbag.”
While increased consumer spending is generally a good sign for the economy and business of all types, spending on a macro scale is often attributed to a more general mood and large groups of shoppers can be easily influenced in various ways, including through politics.
Despite increased chatter of rising consumer confidence in the wake of Donald Trump’s election as president and expectations of a related uptick in consumer spending, Frank Badillo, director of research at MacroSavvy, pointed out that a cursory breakdown of confidence stats by age can lead to a different conclusion.
“What we see is that the Millennial was most negatively affected by the election and their post-election confidence has really fallen off,” Badillo said. “Boomers are feeling more confidence in this Trump era, but I don’t know if they’re in a position to spend since they’re behind on retirement saving.”
As one of the most sought-after shopping groups, Badillo said the prospect of existential gloom among Millennials is “most critical” for retailers right now, especially those selling apparel, leisure and sporting goods, where the cohort makes up the majority of spending.
He added that the dour mood may have already dampened fourth-quarter retail sales, which were cited by many a retailer as weaker than expected.
Something that could give retail a boost moving into 2017 is the prospect of a cut on corporate and income taxes. Although entirely hypothetical at the moment, proposed changes to the tax code has given some consumers the feeling that they can get out there and spend more, according to Chris Christopher, a consumer economist with IHS Markit.
“[People] think tax cuts are coming their way, but if things in the White House go south — there’s too much confusion or a lack of addressing the needs of average Americans — it could sour quickly,” Christopher said.
MacroSavvy’s Badillo, for one, isn’t buying the hype that increased consumer confidence or even tax cuts will cause more people to spend more money, be it on apparel, food or vitamins.
“The thing about 2017 that’s so hard to understand is the impact this new administration is going to have,” Badillo said.
He pointed to not only the sweeping generational impact and influence of Millennials, but interest rates that are expected to rise, causing growth in the short term but leading to additional expenses over the years ahead.
“I see sales struggling to grow stronger than last year and certain categories are gonna lose out,” Badillo added. “It’s very much a mixed picture, and not a stronger picture than 2016.”
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