Strong Retail Sales Bode Well for Sector

Core retail sales surged by $33 billion last month – an 8% increase – driven largely by the latest round of government stimulus infusing cash into Americans’ pockets.

Core sales climbed 38% from last April’s trough and are now up 15% from the prior peak in February of last year. Marcus & Millichap predicts April sales will likely be strong as well, “and then we may see some of the gains burn off as the stimulus checks are used up,” said John Chang, Senior Vice President and Director of Research Services at Marcus & Millichap, in a recent video analysis.

“This kind of liquidity and consumption is unprecedented, but so are the economic risks of the pandemic that this liquidity is battling,” Chang said.

But another factor is bolstering a strong retail outlook for 2021. More and more states are reopening, and “people finally have the option to spend money again,” according to Chang. Consider grocery sales to restaurants: in 2015, for the first time ever, consumers spent more money in dining establishments than at the grocery store. That gap widened each year, Chang said, until the beginning of 2020 when restaurant spending was 14% higher than grocery sales.

Then, of course, COVID hit. In April 2020, restaurant sales were less than half what they were two months prior, while grocery sales posted numbers double those of the restaurant industry. Since then, things have stabilized; many restaurants adapted with takeout and contactless delivery, but heavy restrictions still curtailed sales. 

Now, with many states already fully reopened, a “major recovery” is taking place in the battered restaurant sector, Chang said. Last month, restaurant sales were just 2% below grocery, and Chang suspects when April numbers come out, “we could see a re-inversion,” he said.

So why is this important to CRE investors? Stated simply, the recovery of these sectors are critical for retail CRE as a whole, Chang says. He lauds the efforts of retail center owners to work with hard-hit tenants throughout COVID, and thinks “we’re almost back in the clear…and reopening will also breathe new life into lifestyle centers and other entertainment heavy retail venues.” What’s more, increased consumption will also support industrial space demand as retailers begin refilling inventories.

And third–and probably most importantly, Chang says—the broader recovery will be a spark for job growth. Even though 14 million jobs have been recovered since the onset of the pandemic, the US is still 8.4 million jobs below pre-pandemic levels. And the hospitality sector, which includes restaurants, was hardest-hit; as of March, the sector is down 19% below pre-crisis levels, with 3.1 million jobs short of pre-COVID totals. That’s 37% of the total 8.4 million jobs yet to be recovered, Chang said.

Ultimately, “all those checks that went out last month are making their way through the economy, and that will be good for all commercial real estate,” Chang said. “Ultimately this retail use will drive long term growth. Just keep your eyes on the horizon.”