WASHINGTON — Retail sales fell at department and specialty stores and general merchandisers in July as consumers pulled back on spending at brick and mortar stores at the start of the back-to-school season, the Commerce Department’s monthly report showed Friday.

Online sales continued to take share away from brick-and-mortar stores, posting an increase last month while traditional retailers saw declines in sales.

Sales at apparel and accessories stores fell a seasonally adjusted 0.5 percent to $21.1 billion, while sales at department stores dropped 0.5 percent to $13.1 billion. Sales at general merchandise stores, a category that includes department store and discounters, declined 0.1 percent to $55.8 billion.

In the overall economy, retail sales remained flat at $457.7 billion, generally falling below economists’ expectations.
Scott Hoyt, senior director of consumer economics at Moody’s Analytics, said weak pricing power and a shift in sales from brick and mortar stores to online has hit the three retail sectors hard.

That was evidenced Thursday when Macy’s announced it plans to close 100 stores, due in large part to declining foot traffic in malls and competition from online sales.

While most retail categories showed declines in July, non-store sales, which are primarily online sales, increased 1.3 percent for the month.

“I think there is a lot of weakness at department stores and apparel specialty stores, not because consumers are not buying apparel but because they are buying more of it online,” Hoyt said. “Any place that sells apparel is suffering both from weak pricing and the switch to online sales, which may have also been inflated this month by Amazon’s Prime Day sale.”

The other “real weight” on retail sales is a lack of pricing power, he added.

“It’s difficult to achieve growth in the current pricing environment,” he said.

Despite the flatness registered in overall retail sales in July, Moody’s is forecasting a pickup in overall consumer spending in the coming months.

“We think the fundamentals for consumer spending right now are quit strong,” he said. “Housing prices are rising rapidly, the stock market has once again hit new highs and most importantly, the labor market has continued to tighten.”

Hoyt also pointed to stronger wage growth and more available credit for consumers.

“Virtually all of the fundamentals are in place to support real consumer spending but nominal spending, particularly on goods is being held back by lack of pricing,” he added.

Jack Kleinhenz, chief economist at the National Retail Federation, said retailers “do have the ability to spend” based on recent job and income gains, but appeared to take a “breather” in July.

“I suspect that July’s flat performance is transitory and does not signal a slowdown. July’s spending remained at June’s strong level, even though consumers appear to have taken a breather,” he said. “Retailers continue to suffer from weak pricing, which could in part also explain today’s flat figure.”

Chris G. Christopher, Jr., director of consumer economics at IHS Global Insight, consumers took “a break in July,” spending on autos and online but “staying away from the mall.”

He pointed to strong online sales, noting they have not declined since January 2015. Amazon’s Prime Day sales also boosted the category Christopher said, noting that department stores “took a beating in July.”

“Online retail sales have been cannibalizing in-store sales during the back-to-school and holiday shopping seasons,” he noted.

As a result of the July sales report, Christopher said IHS is lowering its back-to-school retail sales outlook from 4.2 percent to 4.1 percent.

“The back-to-school retail sales season started out slightly slower than expected, so we are lowering our back-to-school retail outlook,” Christopher said. “August retail sales are likely to be significantly stronger than July’s reading.”

Christopher said IHS remains positive about the outlook.
“The consumer spending outlook is still relatively bright,” he said. “Consumers and housing are doing most of the heavy lifting in the U.S. economy. The July retail sales report indicates that consumers have not thrown caution to the wind.”

“While today’s release is weaker than expected, recent job and income gains support the notion that consumers do have the ability to spend, and I suspect that July’s flat performance is transitory and does not signal a slowdown. July’s spending remained at June’s strong level, even though consumers appear to have taken a breather,” NRF Chief Economist Jack Kleinhenz said. “Retailers continue to suffer from weak pricing, which could in part also explain today’s flat figure.”

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