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Retail’s Reopening Numbers: The Truth Behind the Headlines

On June 16th, a Wall Street Journal headline announced, “U.S. Retail Sales Rose Record 18% in May.” The article, based on data from the Commerce Department,  describes how retail sales—including purchases at stores, restaurants, and online—increased by 17.7% in May from the previous month. In it, Craig Johnson, president of retail consulting firm Customer Growth Partners, observed that “the U.S. consumer’s back big time, and she’s spending.” 

But how excited can we really get here? After all, we’re talking about a previous month in which unemployment rose to a record 14.7%. In April 2020, we also saw retail drop 14.7% to the month prior. Then, as the country reopened in May, the unemployment rate declined slightly to 13.3%. Is it really surprising that retail sales rose in record numbers in May? What’s the right comp here? 

In this article, we’ll talk about what this initial figure does (and doesn’t) tell us and then discuss what we can expect from the retail sector as the pandemic progresses.

The Problem with a Black Swan Event

A black swan is an extremely rare event with severe consequences. The term was made popular by finance professor, writer, and Wall Street trader Nassim Nicholas Taleb in 2007, just before the 2008 financial crisis. While people will claim that a black swan event was predictable after the fact, the truth is no one can really predict it. In its wake, a black swan event cripples the economy. 

Retailers rely on historical sales data to understand the health of their in business and uncover areas of opportunity. But in a black swan event, “reliance on standard forecasting tools can both fail to protect and potentially increase vulnerability to black swans by propagating risk and offering false security.” One way to prepare for a black swan is by building out robust systems. And you can only do this when you allow a broken system to fail, thus becoming stronger for the next unforeseen event.

In other words, using May’s retail figures as any sort of indicator that things are on back on track is a misnomer. By all accounts, it’s good news. But to say that the U.S. consumer is “back big time” is overly confident. 

We’re Still In It

Regardless of your thoughts on resuming so-called “normal life” —school, retail, restaurants, public transportation, offices—we all agree that we’re still wading through the pandemic. Last week, Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases and a leader on the White House Coronavirus Task Force, said what we’re seeing now is a “mixed bag” in the U.S. Some states appear to be keeping the virus under control, while others are seeing surges.

Recent CB4 research indicates that consumers’ plans to shop in stores and their level of fear about shopping during the pandemic are related to where they live and their media consumption. One regional retailer may fare well, while another may not. Large flagship stores in major cities could be particularly hard hit. The locations of hotspots and the beliefs of the people who live in those hotspots will influence how well a given store performs. 

There’s reason to believe things will stay on an upward trajectory. Herd immunity is real, and the disease could be losing its potency. At the same time, both Fauci and Dr. Robert Redfield, Director of the Centers for Disease Control, are sounding the alarm about this coming winter. It’s possible that in a few months, regular flu season and coronavirus will meet head-to-head and “simultaneously confound each other,” according to Fauci. It’s possible that after 3 months of social distancing, consumers are merely expressing a burst of pent-up demand that will be temporary as the pandemic ebbs and flows. 

The Unemployment Reality 

A slight dip in unemployment back in May was good news, and numbers should continue to look good as more businesses open their doors this summer. But, in the coming weeks, the benefits that have bolstered those who remain jobless may begin to taper. 

The Coronavirus Aid, Relief and Economic Security (CARES) Act, signed into law in March, gives a range of benefits to individuals and families financially impacted by the pandemic. Some of the most significant of those benefits for the unemployed are slated to end by July 31, 2020, unless Congress extends them.

Those who stay unemployed will no longer receive an extra $600 in their weekly checks. And landlords will be allowed to evict tenants who don’t pay rent. Small business owners will no longer have a forgivable loan to soften their losses. If Congress does extend benefits, they may offer less relief than in the previous weeks.

Unemployed American workers will likely have less discretionary income in the coming days. This will, of course, translate to less money to spend on retail products. Meanwhile, Bloomberg reports that many who’ve kept their jobs have seen temporary salary reductions. Pay cuts could “hobble the return to normal,” as a bigger chunk of workers’ income is held up in fixed obligations like housing and debt payments. If pay cuts persist as the pandemic unfolds, retail could take another hit. 

Reading, Writing, & Retail Math 

When it comes to the most basic retail math, we’re usually talking about 3 figures: this year (TY), last year (LY), and plan. What did the store do this year in this day/week/month year? What did we do last year? How close were we to plan? 

A comp to a previous month—such as that described in WSJ’s headline, “U.S. Retail Sales Rose Record 18% in May—isn’t exactly retail-standard. And even if the rise is a “record,” the article doesn’t include what the expected rise in retail sales numbers from April to May is during non-black swan business as usual. For the previous two years, retail sales did increase, albeit modestly between April and May. If we’re talking about standard retail math, the month of May was down an adjusted 6.1% to LY, according to the US Census Bureau. 

What the U.S. Census Bureau considers retail doesn’t exactly match what retailers consider retail. Figures include purchases at stores, restaurants, and online, including what the commerce calls “nonstore retailers.” So, from the get-go, retailers are wise to take numbers reported by the Commerce Department with a big grain of salt. 

But there’s more. While “adjusted numbers” like those WSJ reports sound like a good thing, they may not be. According to Market Business News, seasonally adjusted numbers remove “the fluctuating component of a time series that has a seasonal pattern.” The Commerce Department accounts for and removes factors that affect a retailer’s business (like a Memorial Day promo or a change in season). But retailers tend to account for this type of seasonality when they strive to gain data-driven insights about their business. Removing these factors, therefore, doesn’t necessarily make much sense. 

Setting Expectations Post-COVID

We’re still wading through the muck of this black swan event. I think we’re all hoping a vaccine will arrive in early 2020 or that herd immunity means we’re slowly but surely kicking this thing. Unfortunately, we don’t really know.

In the meantime, historic data is largely useless until the world is no longer upside down. So how can you set reasonable expectations for your business and your people on the ground? How will you know if your business is trending with your peers? Whose numbers are accurate? And again, what’s the comp? 

If you’re talking about numbers, here’s a resource you can turn to. Retail Dive regularly updates its own tally of monthly retail sales. They use unadjusted, advance numbers, and year-over-year comparisons, grouping “key segments that define ‘retail’” in a way that resonates with industry insiders. 

If you’re talking about checking the temperature of your stores’ overall health, there’s no better barometer now than your customers and your people. Keep an eye on your people and know how they feel about going to work for you. If their morale is low, chances are the experience of shopping in your stores is abysmal. Have a closer look at your assortment. What’s moving? What’s not? Don’t be afraid to cut the bad and focus on the good. Shoppers don’t want you to overwhelm them with the burden of choice. 

What about your policies? How are they working out for you? Do your stores feel safe? Shoppable? Are your associates empowered to help people when something isn’t working? You can tell some of this from looking at numbers, but they’ll only give you a fraction of the picture. So get on that mask and get into your stores. Your team and your shoppers will appreciate you for it.

Despite uncertainty in the retail sector, CB4’s business is growing. The solution is easy to implement, has clear ROI, and uses near-real time data, providing insights that are relevant and real. Watch this short video to learn more about what we call “the CB4 brain” and our patented AI pattern recognition.


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