young woman received online shopping parcel opening boxes and buying fashion items by using credit card

Last week’s 1.2 percent gain for July retail sales was below expectations and has analysts fretting over the strength of the back-to-school shopping season as well as how the holiday season will fare. For consumers, the primary worry is over the longevity of the pandemic and its economic impact.

Jaime Ward, head of retail finance at Citizens Bank, said July sales “grew modestly in July as shoppers faced concerns over the continued surge of COVID-19 cases in many states and uncertainty about the extension of enhanced unemployment benefits.”

That means for shoppers who are spending, online will be key for retailers and brands.

“Back-to-school shopping may be taking a hit now as many school districts consider delayed openings or a continuation of virtual classes in the fall,” Ward said. “Again, we see that retailers that have invested in their e-commerce platforms are faring better than those who rely on brick-and-mortar stores. Some retailers are facing tough choices as the impact of the pandemic drags on in the United States.”

Frank Poore, CommerceHub’s chief executive officer, said the online order volume “across our network in July remained around all-time highs, a clear indication that a shift in how consumers buy things as the COVID-19 pandemic continues is here to stay for the foreseeable future. Simply put: consumers feel safer shopping online rather than in-store.”

CommerceHub works with retailers and brands that include Walmart and Best Buy as well as LG and Adidas, among others. The company’s network has a gross merchandise value of about $20 billion. Looking at the data from the network, Poore said while spending “may have softened this past month, it is still growing.”

“During the month of July, CommerceHub saw the largest categories increases in Patio & Garden, Craft & Office Supplies and Electronics & Entertainment,” he noted. “Enthusiasm for DIY projects remains strong. And, as back-to-school season approaches and more people are informed of formal work from home plans, they are stocking up on the appropriate supplies.”

Poore agreed with Ward, and noted that retailers “need to remain focused on how they bolster their e-commerce capabilities, both to make consumers feel as comfortable as possible and to meet their product needs, in order to drive sales as we head into Q3.”

But there are other challenges ahead. Ike Boruchow, senior analyst at Wells Fargo Securities, said in a research note that the upcoming holiday shopping season is plagued with three emerging headwinds. “The recovery appears to have stalled, as the steady improvements we had been seeing in reopening volumes have now leveled off,” he said adding that the benefits that the “[retail] group was experiencing from fiscal stimulus is waning (it’s been a long time since checks were disbursed, while unemployment benefits have been reduced) and should lead to slower retail trends in August [and going forward].”

The third headwind is increasing prices and surcharges from shipping companies, “which could present a meaningful margin headwind to the group as the shift to digital is accelerated by the pandemic.” As a result, he said “there are more reasons to be cautious versus. optimistic on retail fundamentals in [the second half].”

In his analysis of retail data, Boruchow said that as “stores began to reopen across the country in early May, the flow of incremental data points was broadly positive. Unfortunately, as COVID-19 cases began to see a resurgence in regions across the country beginning in mid-June, improving retail trends appear to have stalled.”

He said that specifically, apparel stores “only improved 5 [basis] points sequentially in July (to a still-deeply-negative negative 20 percent), versus improvements of 24 points and 38 points in May/June, respectively.”

“Furthermore, with many schools utilizing remote learning as the fall semester opens, typical b-t-s spending appears to be shifting towards ‘study-from-home’ categories (e.g. laptops) rather than apparel,” Boruchow added.

Looking at the broader retail market, the landscape continues to shift. Financial reports from retail real estate firms were dismal, reflecting the impact of the pandemic on keeping shoppers away from malls and shopping centers.

In a separate report from Telsey Advisory Group, Dana Telsey, chief research officer, said the “transformation of retail and retail real estate is underway and will only continue to evolve with the engagement of the consumer, retailer and landlord; the experience that is being recreated to include the learnings during this pandemic, some of which is permanent and some of which is temporary; and, the evolution of how consumer spending patterns will adjust during this period and how businesses will evolve to drive a healthy, profitable and sustainable commercial model.”

For more retail business news, see:

Kentucky, Idaho Top List of Fastest Unemployment Recovering

Social Movements, Economic Inequality Spotlight Need for Policy Change

Vendor Business Strategies to Offset Impact of Retail Bankruptcies

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