Vaccines, Stimulus Checks are Giving US Retail Sector a ‘Shot in the Arm,’ Says NRF Chief Economist
The U.S. federal government is playing an active role in consumer spending with three stimulus packages passed in the past 12 months, which is helping support the economy during this pandemic-induced recession. Americans have received thousands of dollars from the government and are opting to spend their newfound discretionary income on more goods and services, not to mention savings and paying bills.
“It helped a lot of individuals get by,” says Jack Kleinhenz, chief economist for the National Retail Federation (NRF), a trade organization for the retail industry. “It was also a good shot in the arm for holiday sales. We had a very good holiday season, a much stronger one than what we forecasted. It was up 8.3 percent year-over-year for November and December combined.”
Similarly the widespread implementation of the COVID-19 vaccines manufactured by Pfizer, Moderna and Johnson & Johnson are helping boost in-store shopping for goods and services around the country as people become more confident in patronizing stores and restaurants. As of this writing, about 50.8 percent of all Americans have received at least one dose of one of the COVID-19 vaccines, according to the Centers for Disease Control and Prevention (CDC).
The declining infection rates are allowing state governments to ease pandemic-related restrictions for retailers and restaurants as well, and the CDC announced in mid-May that those who have been fully vaccinated no longer need to wear masks, even indoors.
“Taking it together, the promise of the vaccines that we saw in late 2020 plus the stimulus checks are really strengthening retail sales,” says Kleinhenz. “We saw some falloff in spending in February, but then in March we had some unexpected growth in spending, largely related to the new stimulus.”
Retail sales in April stayed relatively flat compared to March’s robust 10.7 percent growth. The veteran economist says that the government’s unprecedented response to the pandemic and recession has been essential to the retail sector’s recovery.
“I couldn’t imagine where the economy would be if action hadn’t been taken,” says Kleinhenz. “This has never been done before, there was no handbook and we had no experience with how a pandemic of this sort is handled. We’re learning by doing in many ways.”
REBusinessOnline recently sat down with Kleinhenz to discuss the different retail categories that will see growth in 2021, as well as how American shoppers are eager to return to their favorite stores and restaurants this summer. The following is an edited interview:
REBusinessOnline: With the benefit of hindsight, were there any surprises to you about how the COVID-19 pandemic impacted retail sales over the course of the past 13 or so months?
Jack Kleinhenz: When we first saw the extensive infection rate of COVID-19 and before any discussion of stimulus, we were preparing for a sizable decline in consumer spending because of the lockdowns and restrictions put in place. In any industry a year ago, there was a lot of uncertainty.
That was a concern of ours as were rolling into the late spring months of 2020. As we got into it, our surprise in many ways was once the stimulus package was put in place, the amount of spending that occurred was much more than expected. In June and July we were hitting 10 percent year-over-year growth. Some categories leading the way were food and beverage for at-home consumption, home improvements, furniture and electronics.
The other major change that occurred was online spending. There were never-before-seen growth rates in terms of consumer spending online. It was a safety valve for the retail industry.
Not all were able to stay open during that period of time, there were challenges for those that were not considered essential. Retail is a large industry and we represent both large and small retailers, and the small firms were impacted more because they weren’t able to stay open.
REBO: Generally speaking, how are the COVID-19 vaccines impacting 2021 retail sales?
Kleinhenz: As we’ve seen, it’s really impressive the number of people who’ve been vaccinated already. That gives people some confidence that they are safe and healthy. We’ve seen that people are more comfortable now shopping in-store.
The economy is much stronger because of the vaccines and there’s a willingness to receive them, which we are big supporters of. It will help resume pre-pandemic behavior like shopping in stores and malls, travel and family gatherings.
REBO: Besides the stimulus checks and COVID-19 vaccines, what are some of the other macro-economic events or catalysts that are shaping retail sales this year?
Kleinhenz: We were probably over-stored in many ways. Looking at retail, it’s not just buying goods but also entertainment and social interaction that people look forward to. While we’ve lost some establishments, there are new retailers forming out of these trying times. While it’s been damaging to the industry, we’re still in the fight and getting stronger by learning from the experiences that we’ve had to deal with during the pandemic.
REBO: The NRF is forecasting 2021 retail sales to rise 6.5 to 8.2 percent over 2020. What categories of goods and services do you expect to see the most sizeable uptick in sales?
Kleinhenz: Total retail sales ($4.02 trillion) was lower than what we initially reported ($4.06 trillion). That’s a big difference, although we had good growth year-over-year.
Several categories had sizable upticks. People were hunkering down inside their homes so food and beverage saw phenomenal growth of 11.5 percent year-over-year. Home improvement was up 13.9 percent, and non-store/online sales were up 21 percent. These are all very strong growth rates during this period of time.
These will continue. I’m not a believer that people have totally filled out their expectations for making home improvements. The same thing can be said to a certain degree for food and beverage spending to stay elevated for a while until we get restaurants all the way open again and people are comfortable.
I believe some apparel/clothing will pick up in 2021. People are looking for the opportunity to get into a new situation and celebrate a bit. They want to feel better, and because they have a stockpile of money to do so, they’ll likely spend more, especially around the holidays.
The president asked us to think about Fourth of July as a great inflection point. Plus there is likely to be more spending for back to school. Many businesses are going back to work in the office, so there will be some associated spending in terms of clothing and supplies. That should be valuable for the retailers.
During recessions we don’t usually have the strength in the housing markets that we’ve seen. This has been an unusual situation. It has created demand for homes and now people are having to outfit their new homes with goods that are generally purchased at retailers — appliances, towels, etc. There’s a high correlation between home purchases and retail spending.
REBO: Are there any categories that you believe will either stay relatively the same or see a decrease from 2020 sales activity?
Kleinhenz: It’s hard to say at this time. We may not see as much demand for electronics. People geared up last year to operate at home, for school purposes or work purposes. That could not be as big of a deal for spending.
We may find softness in the sporting and hobby areas as people start to get out and about. In terms of consumer spending, we should see some pickup in food services and drinking. We’ve already seen it. But COVID-19 is still present and we still have concerns. People not getting their vaccination or their second vaccination will really slow progress.
REBO: Do you expect services-oriented retailers to see a bounce back over the course of this year or will it take longer for the gyms, salons, barbers and spas of the world to regain their footing?
Kleinhenz: The composition of spending has shifted from services to goods spending. Logically that makes sense because service establishments weren’t able to operate in many areas, so that just freed up dollars that were not spent on hair salons or basketball games or other activities that were closed down. As the economy reopens further, we’ll see the spending in services and food and beverage. There is going to be an adjustment as people travel and go out to eat more, but it will take place on an inconsistent basis.
It depends on the service you provide and if you can control the health and safety of your clientele. We’re all concerned more about our health and safety going forward now that we’ve gone through this pandemic, but it’ll take more time for services that have more proclivity that exposes individuals to contagions. Barbers, spas, salons and theaters are all trying hard to regain their footing and reclaim what they had before.
REBO: In April, some theater-related news hit the headlines. Out on the West Coast, Pacific announced it was closing the doors of its Pacific and ArcLight theaters. At the same time, Regal has been reopening its theaters nationwide as major studio movies are starting to come out. How do you see entertainment-based activity shaking out this year?
Kleinhenz: There’s going to be a real difficulty to get people back on track since so many people have become accommodated to streaming services that are available for their home. It’ll be easier for some communities and states that have really brought down their infection rate more than others.
— Interview by John Nelson