The Big Chill: Late Q4 Omicron Surge Sees December Retail Sales Slumping 1.9%

retail shopper

Call it the big chill as a spike in COVID omicron cases for the second half of December doused an otherwise solid Q4 for the nation’s retailers and food establishments. The unexpected drop in sales of nearly 2% raises the stakes for the upcoming earnings results from retailers and also heightens attention on the impact of rising prices and tight supplies.

The nation’s broadest measure of consumer activity ended the holiday shopping season with a whimper Friday (Jan. 14), as new data shows December retail sales fell 1.9%, coming in much weaker than economists expected and marking the worst monthly drop since February of last year.

When sharply higher gasoline and auto sales are backed out of the headline number, the monthly decline worsened to -2.5%, the report for the Bureau of Labor Statistics showed. The November data was also revised lower, to 0.2% from the original 0.3% gain reported last month.

On an annual basis, sales were up 16.9% from December 2020 levels, while full-year retail sales rose 19.3% for 2021.

“Omicron is doing meaningful economic damage. That’s the clear message in the drop in December retail sales,” Moody’s Analytics Chief Economist Mark Zandi said via Twitter after the data was released. “Based on credit card data, holiday sales were gangbusters through the first week of the month. Then Omicron infections came on, and sales promptly slumped,” Zandi added.

Digging into the numbers, online or “non-store” sales took the hardest hit, falling 8.7% in December, while other notable laggards included Department Stores (-7.0%), Furniture (-5.5%), Sporting Goods, Hobby, Musical Instruments, & Book Stores (-4.3%) and Clothing & Accessories (-3.1%).

Bucking the downtrend, was a 1.8% increase at “Miscellaneous Store Retailers,” a 0.9% gain in Building Materials, and a 0.5% advance posted by the Health and Personal Care category.

While the weak month-on-month decline caught investors and industry analysts by surprise, it is also impossible to ignore the effect that inflation is having on consumers’ budgets and confidence. The latest CPI data released Weds (Jan. 12) showed prices, on average rose 7% last month, marking the biggest jump in 40 years.

A Shocking Reversal

The December retail data from the government comes on the heels of several fairly rosey private sector reports and also precedes a river of upcoming corporate earnings, which will start to flow in the next two weeks.

In the former, Mastercard’s projection for an 8.5% total sales gain for December came alongside an 11% online sales increase that reflected separate data from PYMNTS that showed one in three U.S. consumers had made an online purchase in December. That’s important because it reflects willful buying behavior, compared to a year ago, when online retail shopping was often the only option in the face of widespread store closures.

On the earnings front, the week kicked off with a pair of preliminary reports that cast a cloud over what had otherwise been mostly positive anecdotal reports from the field concerning holiday sales. However, in the case of Lululemon, the athletic and yoga apparel retailers said the late month impact of Omicron had crimped sales and would see its results coming in below its forecast, blaming staff shortages and reduced hours for the miss.

“We started the holiday season in a strong position but have since experienced several consequences of the Omicron variant, including increased capacity constraints, more limited staff availability, and reduced operating hours in certain locations,” CEO Calvin McDonald said in the company’s announcement.

That warning preceded another one made by trendy apparel chain Abercrombie, which said it would also fall short of expectations this quarter as COVID and supply chain issues left it light on inventory, and therefore, beneath expectations on the revenue front.