By Ben Carsley, Managing Editor (@BC_PYMNTS)
Retailers counting on back-to-school sales to boost their revenues may want to have a backup plan ready.
That’s one key takeaway from the July edition of MasterCard Advisor’s SpendingPulse report: a macro-economic indicator that reports on national retail sales.
Released on August 8, the report revealed many reasons for economic optimism, indicating that total retail sales rose 4.5 percent on a year-over-year basis in July 2013. That represents a slower rate of growth than the 4.7 percent increase in June, but was still stronger than the 3.2 percent growth in the first half of the year.
Much of the growth in July was driven by gasoline sales, which SpendingPulse noted “outpaced overall retail spending for the first time since October 2012.”
According to Sarah Quinlan, SVP, Market Insights for MasterCard Advisors, rising gas sales helped make up for weakness in other retail categories: children’s apparel chief among them.
“Consumers will be out shopping for back-to-school clothing because their kids will have grown out of last year’s wardrobe,” Quinlan said in the release. “But given the country’s predilection to cautionary spending right now, shoppers are still going to focus on needs versus wants.”
How will the decline in department store and children’s apparel sales impact back-to-school shopping in August? PYMNTS.com spoke with Quinlan to find out, and to glean more insights into the current state of the U.S. retail industry.
PYMNTS.com: MasterCard Advisors has recently released its SpendingPulse Report, which tracks national U.S. retail sales. Were there any surprises concerning consumers spending habits for this summer in comparison to last year’s summer findings?
Sarah Quinlan: Clearly the U.S. consumer is feeling better and has more confidence. This is evidenced by the growth rate in U.S. retail sales over the last four months. But there still remains a level of caution. People are continuing to focus on needs versus wants. Also, for the first time since October 2012, our SpendingPulse data shows the growth rate for gasoline exceeded that of retail sales, which indicates that gas prices are consuming more of the people’s income.
It is almost time for the back-to-school shopping season. What should merchants expect in terms of sales compared to 2012? What sort of impact does this have on the overall retail industry?
We expect a moderate back-to-school season and are not predicting major increases over 2012. Specifically, the effects of a higher payroll tax, increased assessments for healthcare costs and gasoline prices up 5.2 percent over last year means that there is less disposable income to spend on back to school items. We will see a lot of sales and promotions in the retail space in an attempt to entice shoppers.
MasterCard Advisors produces monthly SpendingPulse Reports that are available to subscribers in the U.S., UK, Canada and Brazil. This is a big question, but how has consumer purchasing behavior in each of these countries varied this year? Where have you seen similarities?
The U.S. has been by far the strongest leader in spending year-to-date as its recovery from the recession is more pronounced than the other countries. The U.S. has also been able to continue the strength in online purchases whereas the other countries have seen a bit more weakness due to austerity. Inflation in Brazil is also taking a toll so spending there has slowed more than the other countries.
How would you describe the health of the retail sector as an industry to this point in 2013? Which categories are poised for growth and which have stagnated?
The retail sector is healthier than it has been, however, it is still below the levels seen in 2011. Sectors that have been growing have been furniture and furnishings, which is not surprising given the real estate recovery, and luxury which demonstrates the wealth effect’s impact on spending. Among the sectors that are lagging are airlines because, although people are still taking vacations, they are staying closer to home and driving, rather than flying, as well as department stores.
SENIOR VICE PRESIDENT, MARKET INSIGHTS
Sarah Quinlan is a Group Head and Senior Vice President at MasterCard Advisors, responsible for Market Insights. Her team develops products that utilize MasterCard’s aggregated, anonymous transaction data to delineate actionable trends.
Prior to joining MasterCard Advisors, she was the Founder and CIO of Katen Capital, a global macro hedge fund manager.
Previously, she was the Chief Investment Officer and Head of Alternatives for Saad Financial Services, S.A. Prior to joining Saad, she was a portfolio manager at UBS, and at Lloyds TSB focusing on alternative investments. She was co-founder and portfolio manager of TwentyFirst Century Advisors, a small and mid-cap long/short hedge fund which was ranked in the Top 10 of Mar Hedge.
Ms. Quinlan began her career at Salomon Brothers Inc. in mortgage sales and trading.
She was also the co-founder and Chief Operating Officer of ClienTec, a thin client computer company which was sold in 2000.
She received her BA and MBA from the University of Chicago in Politics, Economics, Rhetoric and Law with Special Honors and in Finance and Accounting, respectively.