Good news for retail came out of the Census Bureau yesterday. July turned out to be not just better than expected but also the month with the biggest rebound in retail sales all year, rising 0.6% for the month and 4.2% since July 2016. What’s more, revised data for May and June show a brighter picture than preliminary estimates had indicated, eliminating what had appeared to be a decline in retail sales.
“Finally, retail sales showed some life,” Robert Frick, a corporate economist at Navy Federal Credit Union, was quoted as saying yesterday.
So should the commercial real estate industry feel cheered by the news? Well, yes and no.
For those who have a stake in retail properties, there is still reason for caution.
A breakdown of the retail data shows that the July uptick is driven largely by motor vehicle sales (up 1.2%) and e-commerce (up 1.3% for the month – quite possibly boosted by Amazon Prime Day, which took place July 11 – and up 11.5% from a year earlier). Although the success of e-commerce can benefit players in the industrial segment of the commercial real estate industry, given the significance of warehouses and distribution centers for e-tailers, it may not be such comforting news for those with a stake in traditional retail properties.
Somewhat obscured by the big picture, some brick-and-mortar categories did not do as well as overall retail sales might indicate. Sales at electronics and appliance stores, for instance, were down 0.5% from June to July and 0.9% from July 2016.
Other categories showed mixed findings, such as department stores, which were, a bit surprisingly, up 1% for the month (but down 1.3% for the year). Similarly, sporting goods, hobby, book and music stores were up 0.3% for the month but down 4.2% for the year.
Homing in on the sporting goods category, Dick’s Sporting Goods had looked poised to be the big winner after Sports Authority declared bankruptcy in March 2016. But investors don’t seem to see it that way. The share price for Dick’s Sporting Goods increased 25% from March to August 2016, but has dropped 54% in the year since, to $26.87 at close of trading yesterday.
Whether the market is right on this one is an open question. In a Q2 earnings call yesterday, Dick’s CEO Ed Stack (who described the retail industry as being “in panic mode”) and CFO Lee Belitsky said the retailer is capturing displaced market share from competitors’ closures and becoming more competitive on pricing, with e-commerce sales rising 19%. Sales and earnings did not meet expectations, but non-GAAP earnings per diluted share of $0.96 rose 17% year over year.
Segments that did well include a catchall category of miscellaneous retailers such as florists and pet shops, which rose 1.8%. Home and garden centers were up 1.2% over the previous month and 8.3% year over year.
Home Depot has been benefiting from the home improvement trend, reporting its highest quarterly revenue in the company’s history yesterday, at $28.11 billion. Its net income hit $2.7 billion for the second quarter, up from $2.4 billion the previous year. Same-store sales beat 4.9% expected growth, instead rising 6.3%.
The company’s share price also has seen steady growth over the past five years. During that period, Home Depot shares have soared 149%, from $60.37 in September 2012 to $150.17 yesterday.
Although caution continues to be the watchword in retail, July’s retail sales numbers nevertheless signal some glad tidings for commercial real estate, both by serving as a better-than-expected economic indicator and by showcasing some bright spots within the retail segment.
Ely Razin is CEO of CrediFi, a big data platform serving the commercial real estate finance market. He can be reached at ceo@credifi.com.
