Retail sales up 1.2% in July, less than expected

Americans slowed down their spending last month, with retail sales only up 1.2% in July. Yahoo Finance’s Alexis Christoforous, Brian Sozzi and Emily McCormick break down the numbers and speak with Columbia Business School Professor Mark Cohen about what it means for the economy.

Video Transcript

ALEXIS CHRISTOFOROUS: Yahoo Finance's Emily McCormick joins us now for a breakdown of this morning's retail sales report. And Emily, what were we spending on last month?

EMILY MCCORMICK: Well, Alexis, taking a look at the Commerce Department's retail sales report, looks like consumers were spending heavily at electronics and appliance stores. Those sales were up nearly 23% in July over last month for the biggest jump of any category. We also saw gas stations and miscellaneous store retailers both rising 6.2% in July over June. Also want to point out that clothing stores, food service retailers extending their June gains but at a slower rate. We saw sales at those stores up 5.7% and 5% respectively.

Now, on the flip side, where we saw consumers definitely pulling back their spending was at sporting goods and hobby stores. Now, those sales were down 5% in July. That was the biggest decrease of any category. This was followed by a 2.9% drop in sales at building materials and supply dealers, as well as a 1.2% decline in motor vehicle and parts dealers.

Now overall, if we take a look at that headline retail sales figure, as you mentioned, those were up 1.2% in July over June. That did miss consensus estimates for a 2.1% jump. And it was a pullback from the more than 8% rise revised that we saw for the month of June.

One thing I do want to note here, though, is that retail sales are now up 2.7% versus the same period last year. We saw a couple of months where retail sales had been rising on a month over month basis, but levels wise, we're still lower year over year because of the pandemic and because of the fact that retail sales have plummeted so heavily and by a record in April.

Now, taking a look at the retail sales, excluding those more volatile auto and gas sales. I do want to point out that they actually did beat expectations. That metric was up 1.5%, better than the 1% rise that had been expected. This is still a deceleration from the rise of 7.7% we saw in June. We're really speaking to the fact here that if you take away some of these categories that had been declining for the month of July, we did get other categories actually outweighing and performing better than expected. Alexis.

ALEXIS CHRISTOFOROUS: I want to bring Brian Sozzi in here now. Because Brian, I know you always watch the retail sector real closely, and you've been speaking with some executives in that space. What are they telling you about business conditions right now?

BRIAN SOZZI: Yeah, Alexis, this my last conversation was yesterday afternoon with Tapestry's interim CEO Joanne Crevoiserat, and I think what we talked about highlights what consumers and investors should expect from retail going into the back half of the year, back to school, and ultimately, the holiday shopping season. One, store closures. Expect tapestry to close a good number of stores. If not this year, look for that to happen in 2021. This will be a digitally focused company next year too.

And then next up, fewer choices for consumers. You know, tapestry talked at length about cutting the number of stock keeping units by 50%. Right now, it is all about managing your inventory, keeping your costs low and maximizing the traffic that you actually do get online or in your stores amidst a pretty bad recession here in the country.

ALEXIS CHRISTOFOROUS: All right. And of course, that's the company behind-- Tapestry is behind Kate Spade and Coach, also Stuart Weitzman.

All right. Let's dig a little deeper into this now with Mark Cohen. He's a former retail executive and studies the industry at Columbia Business School. Mark, good to have you here.

Just your initial reaction. Yes, retail sales not up by as much as we had hoped, but still up nonetheless. Isn't that a positive thing?

MARK COHEN: I think it's the bounce that came from these reopening of stores in late spring. I think it's an aftermath of the government subsidies that continued through last month that have ended and that may not be restarted promptly. I think it's a glimmer of hope we'd like to believe is the beginning of recovery, but I think that's a false flag, if you will.

BRIAN SOZZI: Mark, like I just mentioned, a lot of retail executives I talk with saying how they're pulling inventory out of the stores, offering customers less choice in a bid to increase their profits and raise average selling prices. Do you think we're looking at some sneaky inflation in retail headed into the back to school and holiday shopping season?

MARK COHEN: Well, at the moment, we're looking at wholesale liquidation. I've never seen so many deep discounts on spring/summer goods via online as I'm seeing now. Because frankly, that inventory is deadly, and most retailers need to turn that inventory into cash.

So whereas, prices are deflating at the moment, stores are going to be desperate for margin, and so they're going to be very careful about the inventory they bring into their organization and the prices with which they sell them. So this is a sort of an up or down seesaw like fall that we're going to be looking at.

We're also going to probably see enormous shortages of goods. Think about the fact that most retailers merchandising organizations were shut down this spring and in some cases remain so, as well as suppliers throughout the world, principally in Asia, who stopped shipping early in the year, then were frantically trying to catch up and now, of course, are struggling to reopen their production lines.

So this is going to be a wild ride. And of course, underlying it all, COVID-19 is still out there. The outbreaks, which have been frightening, are likely to get even more frightening with the onset of back to school throughout the United States.

ALEXIS CHRISTOFOROUS: And Mark, that back to school shopping season looks very, very different. Even though a lot of the surveys show people are going to be spending more, because they're spending on bigger ticket items like electronics so their kids can do remote learning. But what do you think the holidays are going to look like, not just for the retailers, but for the consumers, if we're talking about fewer product being on store shelves?

MARK COHEN: If the consumer remains unemployed, and I think that's going to be the case, and if government subsidies aren't available, and that's quite possible, we're going to be looking at a nuclear winter this holiday. Because without disposable income, consumers just aren't going out to shop.

And then, of course, there's the Specter of this COVID-19 that remains out there. And even in countries which have been remarkably well mannered and well controlled, like New Zealand and Australia, there is this resurgence that's just occurred. That's causing those countries to start to lock down again.

We're wide open. Millions of kids going back to school. I don't know whether school systems will be able to stay physically open. My guess is not, in most cases. We've got this crazy quilt election coming up. None of this bodes well for a decent recovery through this holiday.

BRIAN SOZZI: You know, Mark, you've seen-- you've been around retail long enough. What do you think about Amazon entering the mall? Is that the-- would that be a signal of the great rebirth of the mall? Or Amazon opening in a JC Penney, is that the end of the mall?

MARK COHEN: It's the end of the mall. I mean, for Amazon to open in a JC Penney space reflects Amazon's need to create some more geographic connection to their customers, some proximity. They're just-- if they go for that kind of a deal, they are looking for real estate that enables them to more efficiently deliver goods on their one day cycle.

Customers who shop in the mall aren't going to have any kind of a connection with an Amazon local delivery hub. I mean-- and employees at Amazon's delivery hub are not likely to spend their 15 minutes worth of breaks shopping in the mall. So it might be a lifeline in the very short term for some mall owners, but frankly, I don't see how it plays into any kind of an upbeat or healthy future for mall shopping.

ALEXIS CHRISTOFOROUS: All right. Mark Cohen, Professor at Columbia Business School. Thanks as always for being with us.