As apparel companies gear up to report second-quarter results, the broader retail sector is poised to see an improved second half, said analysts at Telsey Advisory Group in a consumer trends research note today.
And in a separate report from IHS Global Insight, back-to-school sales are expected to be “solid” with online sales experiencing robust growth this season. The outlook follows a shift in consumer spending behavior that continues to see preferences for shopping online as well as a continued desire for spending money on experiences over buying things — especially fashion.
But in general, consumers tend to have cash and there’s a willingness to spend it.
“We are in the early innings of second-quarter earnings season, and some consumer companies outside [Telsey Advisory Group’s] coverage universe provide interesting insights into the key drivers in the second half,” the analysts said. “The key takeaways so far are that the consumer remains healthy, guidance remains intact, and companies feel optimistic about the introduction and sell-through of new products.”
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The TAG analysts said there are some key areas of concern in the market, including the impact of the U.S. presidential election and the longer-term impact of the Brexit vote. The analysts said most of the companies reporting so far “are not seeing any dramatic change in their business trends, but are of the view that this could change in time.” Also of concern is “security tensions” that could lead to less frequent travel and consumption, the analysts said.
With the b-t-s season, Chris Christopher, director of consumer economics at IHS Global Insight, said the b-t-s retail sales season “is looking stronger than last year, with year-over-year growth of 4.2 percent, compared with 3.8 percent in 2015. This compares to an expected “sluggish 3.3 percent gain” in b-t-s retail sales from Customer Growth Partners.
“We have upped our 2016 back-to-school retail sales outlook from 4.1 percent to 4.2 percent since Amazon’s second Prime Day was very well received,” Christopher said in his research note to clients, adding that last year’s b-t-s sales were $613 billion, which represented a 3.8 percent gain over 2014. His firm defines b-t-s retail sales “as not-seasonally adjusted retail sales excluding autos, gasoline, grocery stores and restaurants for July through September.”
By way of category, Christopher expects consumer electronics to dominate this year. Regarding online sales, he said b-t-s retail sales growth “is likely to outpace last year’s and is a major game-changer. We expect approximately $1 out of every $5.4 of back-to-school retail sales to be spent online this year.” The economist graded this season with a “solid B-plus” and online sales an “A-plus.”
Although online apparel sales continues to grow, the overall consumer spending trend remains fixated on experiences over buying things. But the market has responded, noted Deborah Weinswig, managing director of Fung Global Retail and Technology.
“Experiential retail is changing the way consumers shop, the way retailers market and advertise, and the way malls are conceived and built,” the analyst said in a research note today. “It encompasses reconfigured malls, in-store experiences and augmented reality, and the bar for rich retail experiences keeps rising.”
By way of example, Weinswig said at the “extreme end of experiential retail” are two malls located in Dubai.
“The Dubai Mall has an aquarium that showcases more than 300 species of marine animals, including sharks and rays, and the Mall of the Emirates has an indoor ski run,” she noted. “Other examples of experiential retail offerings include ‘re-conceived malls’ that house art galleries, such as Shanghai’s K11 Art Mall, upscale tasting centers, hockey rinks, moving walkways, and even waterfalls or sound recordings by famous artists.”
And drone racing, too. In the Hawthorne Plaza Mall in Hawthorne, Calif., an abandoned, two-store mall is now being used as a race course for the Drone Racing League.