Despite a slowdown in job creation and rising gasoline prices, US retail sales are constantly on an increase as Americans are spending more money, spurring economic growth. As growth in various other markets continue to remain slow, all eyes are back on the US as it rises to the top of the fashion industry’s list of happening markets.
In contrast to various markets such as China, Japan or Europe that are showing stagnant growth, the US is re-emerging from the global financial crisis it faced a few years ago and getting on its feet faster and stronger.
This positive change is being seen in retail sales and in April 2016 the sales at most retailers jumped more than anticipated, clearly indicating that the US economy is on its road to recovery. As per Commerce Department figures, purchases climbed 1.3 per cent, the biggest gain since March 2015, whereas the median forecast of 82 economists surveyed by Bloomberg predicted a 0.8 per cent gain.
Data further hints at steady build-up inflation pressures, with import prices recording their largest increase in just over four years in May as a push from a strong dollar and lower oil prices fades. Also, another report by the Labour Department reveals that the import prices have increased 1.4 per cent, the largest rise since March 2012, after advancing 0.7 per cent in April. Michael Feroli, an Economist at JP Morgan reveals, “As has been the case in the prior two years, the modest first quarter disappointment in consumer spending now appears to be a short-lived soft patch.”
This increase is led by healthier household finances that reflect reduced borrowing and increased saving which in turn is helping consumers to withstand rising gas prices and moderate job growth. The positive growth is showcased as 11 out of 13 major retail categories showed increase, including automobile, grocery stores, online merchant, etc. whose sale rose most in almost two years. Also core sales, i.e. the figures that are used to calculate gross domestic product and which exclude categories such as autos, gasoline and building materials, advanced to 0.9 per cent, the most since March 2014 after a revised 0.2 per cent increase in March. The household spending that makes up 70 per cent of the economy is projected to advance at a 2.6 per cent annualized pace in the three years ending in June after a 1.9 per cent gain in the first quarter. The economists further reveal that based on May’s broad increase in retail sales, consumer spending in the second quarter was growing between 3-4 per cent annualized rate.
This increase in domestic sales is led by healthier household finances that reflect reduced borrowing and increased saving which in turn is helping consumers to withstand rising gas prices and moderate job growth.
As a result, the Atlanta Fed raised its second quarter GDP growth estimate by three-tenths of a percentage point to a 2.8 per cent rate as the economy was growing at a 0.8 per cent rate in the first quarter. Strong domestic demand and sales is helping businesses reduce an inventory projection, which though is a deterrent to GDP growth in the short-term but nonetheless would give businesses room to order more goods from factories in the future, leading to a boost in production. In May, the retail sales buoyed by 0.5 per cent increase in auto sales, even as Americans also bought clothing and spent on online purchases.
Increasingly as the economic growth in China continues to slow, a resurgent America is expected to grow by 6 per cent in the five-year period from 2013 to 2018, finding favour amongst many retailers. According to industry experts a strong US dollar will allow European luxury goods companies to export more into America and the translation effect will create a positive boost for revenues, domestic demand and margins. Many brands are reacting to this strong US market by reallocating some of the investment that they made in the past years to build up their network of stores in Asia, where there is no more need to expand aggressively, and moving part of that investment to the US.
Nonetheless in terms of luxury, US is still an under-penetrated market as it has 30 per cent of the world’s high net worth individuals, people having more than US $ 1 million in liquid assets and nearly a quarter of global GDP but consumes less than a fifth of the world’s personal luxury goods. Also, due to its appeal as a tourist destination with hubs such as New York, Las Vegas, Miami, LA, etc. the US has a strong impact around the world. Though a strong US dollar is helping to boost domestic consumption of imported luxury goods but this may on the contrary have a negative impact on tourist sales. Still, last year’s 1.8 million Chinese tourists alone spent US $ 21.2 billion while in the US, a lot of which was from shopping. Many brands are either opening more stores or are establishing a stronger presence in US, such as Uniqlo that now operates an e-Commerce platform and nearly 40 stores in the US and plans to open more, while Inditex owned Zara has invested in a 4,400 sq. ft. flagship store in New York’s Soho, and plans to open more stores in Las Vegas, San Diego, New Jersey, Los Angeles, Boston, Houston, Dallas, Chicago, Seattle and the US territory of Puerto Rico.
Meanwhile, even as US sales soar, riding on economic recovery, consumers are still looking at value for money and brands that they can connect with. As US retail sales rise more than the forecast, focusing on consumer spending that is helping the economic growth, brands and retailers are seeing US as the land of the best opportunities for growth, but it still remains to be seen who will be able to tap it to its full potential.
