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Retail Sales Drop, With Some Retailers Facing Holiday Extinction

Retail sales dropped 1.1% in November compared with October, making the second monthly drop in a row, with apparel and food service taking the worst hits, according to the Census Bureau. October sales were revised downward to reflect a 0.1% monthly drop.

Shopping in the era of the coronavirus.

Losing retail categories for the month included not only apparel (sales down 6.8%) and restaurants and bars (down 4%), but also electronics retailers (down 3.5%) and car dealers (down 1.7%). Department stores, the perennial Charlie Brown of the retail sector, suffered a drop in sales of 7.7% for the month.

In fact, most kinds of retail sales edged down for the month, though a few sectors scored gains, such as grocery stores, up 1.9%, and building supply and garden equipment purveyors, up 1.1%. Internet sales eked out a 0.2% gain for the month.

“The economy is hitting a very rough patch,” PNC Financial Chief Economist Gus Faucher told Reuters. “Although widespread vaccine distribution will support stronger economic growth by mid-2021, conditions will remain soft until then."

Another factor in sluggish sales might be that federal stimulus money for the economy has nearly run dry, and until recently there wasn't much of a prospect for any more. The U.S. unemployment rate edged down to 6.7% in November, down eight percentage points from its recent high in April, but still 3.2 percentage points higher than in February. 

Compared with a year ago, overall U.S. retail sales didn't do too badly, gaining 4.1%. Most retail categories also gained year-over-year, including building material and garden equipment, up 18.7%, and grocery stores, up 10.5%, both of which have benefited from more people staying home more of the time. Internet sales have spiked 29.2% since this time last year.

Some categories did badly compared with last year, again the result of fewer people going out. Clothing shops saw annual sales crash by 16.1% and restaurants lost 17.2% of their sales compared with November 2019.

As the holiday sales season nears its conclusion, there are some retail brands staring into the abyss. Weak sales for them might mean extinction as a going concern. For example, after the holiday season of 2019, and even before the impact of the pandemic, sporting goods specialist Modell's, Art Van Furniture and Pier 1 all announced liquidation plans.

“The worst is yet to come. The dust has not settled on this,” Turnaround Management Association CEO Scott Stuart told CNBC. “You think Christmas is going to save retailers? Maybe it won’t.”

Store closings will continue, according to Moody's Investors Service.

"The U.S. retail industry has long had a glut of stores, and continues to have more mall space per capita than any other country in the world", Moody's said in an October research note. "While some retailers could previously survive with marginally profitable stores, the abrupt mass shift in shopping habits as a result of the pandemic will force the closure of many more stores with limited economic value." 

Moody's named as especially at risk Belk (department stores), Beverages & More, Jo-Ann Stores, Party City Holdings, The Fresh Market, MED ParentCo., Midas Intermediate Holdco II, Rite Aid, 99 Cents Only Stores, NMG Holding (Neiman Marcus), Petco Animal Supplies, Jill Acquisition and SHO Holding (clothes).