Retail vice

October 25, 2015 01:00 PM

August summer vacations leave little money and opportunity for vice. And even more travel means even less vicing. Spending on vacations is cannibalizing other retail spending. But in general spending is slowing, particular for brick and mortar operations, thanks to the Amazon effect. 

July retail sales jumped on non-store sales due to Amazon Prime Day (see “Cyber sales”). Retail sales 
(ex Autos & Gas) grew $1 billion in July. Of that, $600 million came from non-store retailers.  

On July 15, Amazon ran Amazon Prime Day, a big sales event timed for Amazon’s 20th anniversary. The consumer response was huge. They sold 34.4 million items, 18% more than on Black Friday. And competitors like Walmart were forced to join in with their own special sales. Amazon’s promotion pulled in August sales, especially back-to-school items. That $600 million jump will likely reverse.

Let's do lunch

Restaurant and bar activity offers a very important insight into the economy. From it, we get a Proxy for all consumer spending behavior and a gauge of real-time cash flow. Very often, Americans hit bars and restaurants because they are out and about shopping or playing. This is typically unplanned spending, and therefore a function of immediate and near-term financial conditions. 

For employers, we get payroll growth and a gauge of real-time demand. The labor market is a buyer’s market as leisure has a high level of unemployment (7.5% versus 5.3% for all sectors). And restaurant and bar owners feel shifting economics immediately and respond immediately.  The sensitivity to immediate fluctuations in consumer spending comes from thin margins and visibility to cash flow. They know in real-time if foot traffic is up or down, if people are spending or not.  Also, thanks to labor law flexibility, restaurant and bar owners can hire and fire at will. 

Restaurant & bar spending has been the fastest growing sector of retail. At $300 million in growth in July, it contributed 15% to July’s retail growth. It’s also a proxy for shopping. People out shopping and playing also tend to end up dining out. Foot traffic for one turns into foot traffic for the other.

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