NRF’s Confounding Holiday Growth Pronouncement

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Early in the morning, just as soon as the Census Department released its Advanced Monthly Retail Trade Survey for December 2020, I took a cursory look. It told me what I needed to know. Retail was doing reasonably well by year’s end, but certainly not great.

One sign of weakness: On a month-by-month basis, retail trended down, not up. Seasonally adjusted sales were down 0.7 percent from November, following a monthly drop of 1.4 percent in November. This compares to monthly increases of 2.9 percent in December last year and 3.7 percent for November.

[callout]Underneath the topline 2020 results were distressing signs of just how much the pandemic had altered the retail landscape and people’s shopping preferences.[/callout]

In both years, holiday spending was front-loaded earlier in the season, but the direction of change was dramatically different in 2020 as compared with 2019.

Shifting Retail Sands

According to the report, overall, retail and food services reached $6.3 trillion at the end of the year. That was only a shade (.6 percent) above 2019. Excluding food services, retail was up 3.5 percent for the full year, which was higher than I expected. Motor vehicles and parts dealers, the biggest category in retail with $1.25 trillion in sales, rose 1.1 percent, giving another positive sign of consumer confidence.

But underneath the topline results were distressing signs of just how much the pandemic had altered the retail landscape and people’s shopping preferences. Those retail categories considered essential in the government shutdowns, all of which were already big categories, surged ahead over the holidays, while those nonessential retailers fell hard, with the exception of sporting goods, hobby, musical instrument and bookstores.

Net/net: Retail is well on its way to recovery, but massive disruption and redistribution of sales across retail categories remain a challenge.

Not in Kansas Anymore

Later in the afternoon, the National Retail Federation (NRF) came out with its read on the same data: “2020 Holiday Sales Grew 8.3 Percent Despite Pandemic,”  and I felt transported to the Land of Oz. What did NRF see that I missed?

“Consumers shifted into high gear in December, giving the holiday season a strong finish that could be a good sign for the continuing recovery of the economy this year. The 8.3 percent holiday season increase was more than double the 3.5 percent average holiday increase over the previous five years, including 2019’s 4 percent gain,” NRF announced, reporting the year-over-year increase for November and December, excluding automobile dealers, gasoline stations and restaurants.

“Despite unprecedented challenges, consumers and retailers demonstrated incredible resilience this holiday season,” NRF President and CEO Matthew Shay proclaimed, with NRF Chief Economist Jack Kleinhenz adding, “There was a massive boost to most consumer wallets this season.”

This came just a day after the NRF was telling a different story in a statement in support of the Biden stimulus plan. “Jobs have been lost, businesses have been closed and our economy has struggled. We support providing critical government assistance in the form of direct payments to families and individuals whose lives have been disrupted,” Shay said.

NRF is talking out of two sides of its mouth. If retail is a reliable proxy for the strength of the consumer economy, then why would a third $1,400 per person payout be necessary?

Lies in Statistics

Returning to the data, I sliced it exactly like NRF – only November and December and in only in 10 categories, not all 13 categories; then the numbers align with the NRF report. But NRF is conveniently ignoring the bigger picture, and three categories.

One can argue that motor vehicles and parts stores and gasoline stations don’t belong in NRF’s purview. Yet autos represented 20 percent of the total retail market in 2020 and are hard to ignore as an indicator of consumer confidence.

As for gasoline stations, they are a fairly large category in retail, $421.5 billion in 2020, and also hard to shunt aside. Plus, 7-Eleven is recognized on NRF’s Top 100 Retailers list.

But overlooking the food services and drinking places category is unforgiveable. NRF was able to finesse its headlines thanks to pulling out the massive 20 percent decline in food services in the last two months of the year, a $127.4 billion category in 2019 and only $102 billion this year

Food Service’s Loss Is Grocery’s Gain

NRF correctly points out that a lot of that the $25 billion saved by consumers by not dining out in November and December were reallocated to other categories in retail, most notably grocery and beverage stores, which advanced 9.8 percent to $147.3 billion in the final two months of 2020.

People have to eat. Throughout the year, grocery has gotten a tremendous boost being an essential retailer with sales in the final two months up 9.6 percent, ending the year at $853.3 billion. Grocery’s gain was food services’ loss. Back in 2019, these two categories were basically equal at $765.1 billion and $765.8 billion respectively. But this year, food services only generated $616.8 billion in sales for a 19.5 percent drop overall.

A bigger emotional loss is that dining is an increasingly important part of a consumer’s entire shopping experience. Many retailers, like Walmart, Target, Costco, and Nordstrom to name a few, offer dining in-store services. Malls and shopping centers often sink or swim based on their choice of restaurants and pubs to entice shoppers.

Without reporting on food services as an essential part of the retail landscape, NRF is not telling the complete story. And although it ignores food services in its reporting on retail results, NRF includes it in its assessment of the entire retail industry, most recently in its May 2020 “Economic Impact of the Retail Industry” white paper. Further, it also doesn’t ignore them on its top 100 retailers list where MacDonald’s, Chick-Fil-A, Burger King, Subway, Darden among others are ranked.

Food services have been decimated by the pandemic and the government imposed closures. The National Restaurant Association estimated that about 17 percent of the nation’s restaurants have permanently closed. That is 110,000 out of the roughly 650 million restaurants that started 2020, with the pace picking up steam in the last three months of the year.

The loss of so many restaurants will continue to drag down foot traffic for retailers in malls and shopping centers, all the while boosting results in the food and beverage store retail category.

Time for Reboot Reporting on Retail

This year of all years, after the disruptions caused by the pandemic,  was the perfect time for NRF to amend its retail reporting to include the food services category, one that is a co-dependent variable with grocery and an important part of the retail economy and shopping experience. And I argue, autos and gasoline stations are also important aspects of retail the NRF shouldn’t ignore.

Telling the complete story of Holiday 2020 retail, NRF would still have good news to report, but not the one it shared. Across all retail, including auto, gas stations and food services, sales in the last two months of the year rose 3.5 percent, a very respectable showing but a far cry from the 8.3 percent reported. And if autos are pulled out, the year-over-year increase would have been only 2.5 percent.

As we come out of 2020 with renewed confidence that the worst is over and retailers can look forward to a more positive environment in 2021, the retail economy is hardly going gangbusters as the NRF suggests.

Considering the disruption of the pandemic and how it has spun retail in a new light, I wish NRF had given a more accurate portrayal of what is really going on in the industry. Further, a more nuanced and sensitive analysis would be more insightful rather than purely optimistic “sis boom bah” cheerleading. Lack of transparency gives people a false sense of security that the retail economy is well on the road to recovery, which is clearly not true for so many companies.

And 2021…

2021 is going to be great for a small select group of retailers, mostly the big players designated as essential during the earlier lockdowns. For everybody else, it is going to be another year of potentially overwhelming challenges. The key question is “What do you do while you’re waiting?” Innovation, pandemic-induced pivots, planning and pacing may save small businesses…and large.

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