US: Chain Store Sales

Thu May 04 07:00:00 CDT 2017

Chain stores are reporting mostly stronger rates of year-on-year sales growth for April, a month however that got a big boost from this year's Easter shift out of March. Sales reports from chains are in year-on-year terms only and are not adjusted for calendar effects such as the shift in Easter which is a major holiday for the retail sector. The best way to look at chain-store sales during Easter shifts is to take both March and April together and with this comparison, stores are mostly downbeat. Weakness in consumer spending has been the dominant feature so far of the 2017 economy.

Monthly sales volumes from individual department, discount, apparel, and drugstore chains are usually reported on the first Thursday of each month. Chain store sales correspond with roughly 10 percent of retail sales. Chain store sales are an indicator of retail sales and consumer spending trends. There is no official composite number for each month's sales, merely sales figures for individual chains. Also, which chains release monthly numbers varies over time as corporate policies sometimes change in regard to providing monthly numbers to the public in addition to quarterly data.

Consumer spending accounts for more than two-thirds of the economy, so if you know what consumers are up to, you'll have a pretty good handle on where the economy is headed. Needless to say, that's a big advantage for investors.

The pattern in consumer spending is often the foremost influence on stock and bond markets. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is whether economic growth goes overboard and leads to inflation. Ideally, the economy walks that fine line between strong growth and excessive (inflationary) growth. This balance was achieved through much of the nineties. For this reason alone, investors in the stock and bond markets enjoyed huge gains during the bull market of the 1990s. Spending at major retail chains did slow down in tandem with the equity market in 2000 and during the 2001 recession. Sales weakened again in 2008 due to the credit crunch and recession.

Chain store sales not only give you a sense of the big picture but also trends among individual retailers or different categories. Perhaps discount chains are doing well, but not high-end department stores. Maybe apparel specialty retailers are showing exceptional growth. These trends from the monthly chain store data can help you spot specific investment opportunities, without having to wait for the quarterly or annual reports.

Just a few words of caution. Sales are reported as year-on-year change from the same month a year ago. It is important to know how strong sales actually were a year ago to make sense of this year's sales. In addition, sales are usually reported for both total sales, which include new store openings and acquisitions, and for "comparable stores" which are stores than have been in place for at least one year.