Thrifty Shoppers Keep Retail Sales Flat From May to June

Shoppers paused their spending in June from May, defying economic forecasts for a pullback and proving their resilience in the face of an uncertain economy.

Retail sales were unchanged in June from May, after being revised upward to a 0.3 percent increase in May, according to the Commerce Department report Tuesday. Last month, April sales were revised downward–a 0.2 percent decline, from unchanged. Sales rose 0.6 percent in March and 0.9 percent in February. That comes after sales fell 1.1 percent in January, dragged down in part by inclement weather.

Sales at gas stations and auto dealerships weighed down the figure. Excluding gas prices and auto sales, retail sales rose 0.8 percent. Sales at gas stations were down 0.3 percent, while business at auto stores fell 0.2 percent, as dealerships were disrupted by a multiday outage after cyberattacks on a software supplier.

The snapshot offers only a partial look at consumer spending and doesn’t include many services, including travel and hotel lodges. But the lone services category–restaurants– registered an uptick of 0.3 percent.

Elsewhere, plenty of areas were strong. Online sales rose 1.9 percent, while clothing and accessories store sales rose 0.6 percent. Department stores posted a 0.6 percent increase. Stores selling building materials and garden supplies rose 1.4 percent.

Control retail sales, which excludes food service and drinking places, auto dealers, gas stations, construction material and garden supply stores, and a few other volatile categories, and which goes into the calculation of nominal gross domestic product, rose a solid 0.9 percent in the month.

Government retail data isn’t adjusted for inflation, which declined 0.1 percent from May to June, according to the latest government report. High inflation helps to inflate retail sales figures.

“This was a legitimately strong report and inconsistent with a consumer who is on the brink of collapse,” Richard de Chazal, a macro analyst at William Blair, wrote in a report. “This spending is being driven by still positive (though moderating) real income growth, from a consumer that is still widely employed.”

But he added that spending is inconsistent with a host of retailers still seeing more value-conscious consumers who are trading down and generally more thoughtful about their purchases. He also said lower-income consumers, having spent their pandemic savings, are increasingly using credit cards to maintain consumption, resulting in higher delinquency rates and falling levels of confidence, as inflation has moderated along with real income growth.

Federal Reserve Chair Jerome Powell said Monday that the Federal Reserve is becoming more convinced that inflation is headed back to its 2 percent target and said the Fed would cut rates before the pace of price increases actually reached that point.

Last week, the government reported that consumer prices declined slightly from May to June, bringing inflation down to a year-over-year rate of 3 percent, from 3.3 percent in May. June marked a third straight month of cooling deflation, a sign that the worst price spike in four decades is steadily fading and may soon bring in interest rate cuts by the Federal Reserve.

So-called “core” prices, which exclude volatile energy and food costs and often provide a better read of where inflation is likely headed, climbed 3.3 percent from a year earlier, below 3.4 percent in May.

Meanwhile, America’s employers delivered another healthy month of hiring in June, adding 206,000 jobs and once again underscoring the U.S. economy’s ability to withstand high interest rates.

The retail sales report comes as there’s been some upheaval in the retail landscape.

Earlier this month, the parent company of Saks Fifth Avenue agreed to buy upscale rival Neiman Marcus Group, which owns Neiman Marcus and Bergdorf Goodman stores, for $2.65 billion, with online behemoth Amazon holding a minority stake.

The new entity will be called Saks Global, creating a luxury powerhouse at a time when the arena has become increasingly fragmented with different players, from online marketplaces that sell luxury goods to upscale fashion and accessories brands opening up their own stores.

Macy’s announced on Monday it was terminating its monthslong buyout talks with two investment firms, citing a substandard offer and the lack of certainty over financing. The department store chain alleged that Arkhouse Management and Brigade Capital didn’t disclose the highest purchase price they were prepared to pay.

Macy’s said it will focus on its own turnaround efforts. That previously unveiled plan includes closing 150 Macy’s stores over the next three years and upgrading the remaining 350 stores.

And grocery chain Stop & Shop, squeezed by rivals like Walmart and Aldi, said Friday it will close 32 underperforming grocery stores in the Northeast by the end of the year.

Walmart retools fashion choices to woo young shoppers 

Walmart has spent three years overhauling its mix of adult apparel to make it stylish as well as sensible for middle America. Now, the nation’s largest retailer is seizing the back-to-school shopping season to take another shot at fashion respectability.

The company plans to relaunch its 30-year-old brand for teenagers and young adults on Tuesday with a new 130-piece fall collection aimed at Generation Z. The retooling of the No Boundaries label is part of a strategy to get customers to think of Walmart as a place to buy cool clothes along with groceries.

The new collection includes of-the-moment styles like baggy jeans, cropped T-shirts, faux leather corsets and bomber jackets. Most items cost $15 or less. Some pieces are made from recycled fabrics to appeal to a generation that values sustainability. The size range was expanded to run from XXS to 5X to be more inclusive.

The Bentonville, Arkansas-based company is marketing the revamped No Boundaries on TikTok, YouTube, Pinterest and the online gaming site Roblox. It plans to test new prototypes in stores located in major college towns.

The intended audience is noticing.

“It’s basic, but cute,” Za’Kryra Davis, 16, said while looking at the camouflage pants and denim rompers at a Walmart store in Secaucus, New Jersey, where the new No Boundaries was getting rolled out last week.

Davis, who shops at chains like Rue21 and Forever 21 and gets inspired by trends popping up on social media, said she’s been more open to buying clothes at Walmart in the past few months because she says they look more modern.

Walmart previously relied on a variety of suppliers with separate design teams to build the No Boundaries line, which focused largely on everyday basics like T-shirts and denim. The company hired a dedicated design team to create the relaunch collection, a sign of the brand’s importance to Walmart’s broader fashion strategy.

Still, winning over customers born between 1997 and 2012 will be challenging given Walmart’s heavy competition. The generation of digital natives is known to be price conscious and willing to shop around, frequenting everything from second-hand shops and ultra-fast-fashion online retailer Shein to discounters like Target, and mall-based stores like American Eagle Outfitters.

Olivia Meyer, 22, who lives in Riverview, Florida, gets inspired by trends on the internet and makes most of her fashion purchases online, typically from Amazon, to ensure quick delivery. She approved of the cargo pants and strappy tops she saw while checking out the fall No Boundaries collection on Walmart’s website.

“I’m not loyal to one place,” Meyer said. But she added, “I think Walmart has a shot at targeting Gen Z and getting our dollars.”

While Gen Z spends the least amount on fashion of any demographic cohort except the so-called Silent Generation, retailers are eager to court young consumers because they represent the future, said Neil Saunders, managing director of research firm GlobalData.

“If you don’t capture them today, you run the risk of them going to a rival,” he said. “Traditionally, Walmart has not been appealing to this kind of younger demographic, which is why it’s trying to change.”

Walmart said No Boundaries generates annual sales of $2 billion, but Saunders thinks the numbers have been stagnant for a few years. He said the retailer needs to overcome the perception that its fashion aspirations end at floral prints, pull-on pants and other styles more typically worn by older adults.

Walmart signaled just how much it wants to get taken seriously as a fashion destination three years ago when it hired Brandon Maxwell, an American designer who has dressed celebrities such as Lady Gaga, as the creative director for its “elevated” fashion brands, Free Assembly and Scoop.

In February, the company hosted social media influencers who focus on trendy but affordable style at a fashion show that featured Maxwell’s designer collection, which is sold at high-end Saks Fifth Avenue and Neiman Marcus.

“It’s always about the women in my life who define what I do, and it’s no different at Walmart,” said Maxwell, who mingled with the Walmart guests during a luncheon after the show.

Under the stewardship of Denise Incandela, executive vice president of apparel and private-label brands, the company has featured more than 1,000 brands and partnered with celebrities like Sofia Vergara.

Incandela said at a recent industry conference in New York that Walmart’s scale–it operates more than 4,600 stores in the U.S.–can help drive quality and low prices. But the big growth opportunity in clothing is with the Gen Z customer who “cares about style,” she said.

At the Walmart in Secaucus, Elizabeth Fernandez, 58, and her daughter, Destiny Fernandez, 38, said they found the women’s clothing more appealing than in the past. They were also drawn to the overhauled No Boundaries line. Their shopping cart brimmed with pants, shorts, tops and skirts drawn from throughout the store.

Citing the cropped puffer jackets and different denim washes on the racks, Destiny Fernandez judged Walmart to be on the mark in the way it had recycled and refreshed earlier trends.

“It’s all stuff that is coming back,” she said. “So I am going to take a look.”

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