Retail Round-Up: Consumers Kept Spending in April Despite Rising Prices

Four Straight Months

According to the US Commerce Department, retail sales rose 0.9% in April, just missing Wall Street expectations of 1%. Despite the miss, the report shows spending rose for the fourth straight month. Americans spent more at restaurants and bars and even shelled out more for cars, clothes, and furniture. Gas expenditures did fall, however, even though prices have cooled slightly after a run-up in March.

The retail sales reading isn’t adjusted for inflation, meaning the increased number represents both sustained rates of spending as well as higher prices. Analysts say consumers have been facing significantly inflated prices for four months without a corresponding drop-off in spending. April’s retail sales were also up 8.2% year-over-year.

Retailers in Focus

While steady sales are clearly a good thing for the nation’s retailers, inflation is eating into some companies’ bottom lines in different ways. Walmart (WMT) is one example, as it issued a mixed earnings report yesterday. While the company raised its sales outlook for the year, it also missed on earnings and reduced its expectation for profit. Executives blame cost pressure from fuel prices, overstaffing, and higher levels of inventory.

On the other side of the coin, Home Depot (HD) posted record sales in its most recent quarter and beat on profit, while also raising its full-year outlook. Executives said the company’s standout first quarter was partly fueled by customers opting for more premium items. They also noted customers haven’t been trading down as a result of higher prices.

Taking a Look at Luxury

As luxury brands weather the inflationary storm, many are counting on American consumers to keep driving sales. This represents somewhat of a paradigm shift, as before the pandemic China was the world’s most significant buyer of luxury goods. In 2019, Chinese consumers accounted for one-third of all top-end handbag and watch sales, whereas just one-fifth of revenues came from the US. That flipped last year, with Americans accounting for 32% of luxury goods sold, and China checking in at 23%.

With Chinese officials dedicated to the “zero covid” policy, this is considered a significant reversal for luxury brands. With the sector’s prime customer base cut off due to the lockdowns, the American luxury consumer is being counted on to offset those losses. Inflation remains at 40-year highs, but it seems wealthy US consumers aren’t closing up their wallet too tightly just yet.

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