Key Takeaways
- U.S. shoppers kept spending in April matching retail sales in March underpinned by stimulus funding, higher savings, and rising consumer confidence.
- Home-related goods benefited from stay-at-home trends despite better weather, a healthy pace of vaccinations, and relaxed social distancing requirements.
- Spending shift to experiences could dampen apparel sales as restaurants and other venues continue opening up.
U.S. retail sales held steady in April from March highs. Consumers continue to shop, bolstered by stimulus receipts, higher savings, and greater personal wealth. Improving consumer sentiment points to healthy spending rates for the rest of the year. A closer look at the numbers illustrates consumer behavior trends that we believe will persist through 2021. Our rating actions have been uniformly positive, reflecting improvements even in the weakest pockets of the sector. While the number of ratings that have negative outlooks still outnumber the ratings with positive outlooks, we expect this gap to narrow as credit quality continues to stabilize.
The nesting trend is not slowing. Sales in home building and garden equipment, electronics and appliances, and home furnishings all held. This is despite an environment that increasingly supports spending time outside of the home: warming weather, higher vaccination rates, and loosening social distance mandates. In our view, consumers have accepted that for now, more time will be spent at home relative to pre-pandemic levels, so they will continue to spend to improve their home surroundings. This bodes well for home improvement, furniture and décor, electronics, and retailers that cater to hobbies, fitness, and other home-based activities.
There's a high risk of spending in some retail categories shifting to experiences. Clothing and accessories, along with department stores enjoyed a dramatic uptick in March sales. April sales moderated but were still the second-best month since the pandemic's onset. Comparing this to the sustained growth in food service and drinking places suggests consumers largely refreshed their wardrobes in March as they prepared to dine out more in April. An alternative view of supply chain constraints capping topline growth would suggest the pent-up demand in clothing isn't exhausted. Either way, we expect ongoing volatility in this hard-hit area of retail, while restaurants should continue to recover.
We believe there is significant pent-up demand for dining out among consumers and the path toward a more normalized operating environment is progressing. Sales volumes have begun exceeding pre-pandemic levels across many of our rated restaurant companies and we are forecasting further improvement as mobility and confidence builds. We recently revised the negative outlooks on Darden Restaurants Inc. (BBB-/Positive/A-3) and Starbucks Corp. (BBB+/Stable/A-2) to positive and stable, respectively. Grocery sales held steady despite higher spending at restaurants, reflecting the still relatively high proportion of time spent at home. Nevertheless, we still believe a reversion to the mean will result in grocery sales eventually declining to levels closer to pre-pandemic spending.
Our expectation of volatility in the apparel sector underlies the still negative bias in our ratings in this subsector. Nevertheless, apparel retailers are repairing their balance sheets as demand returns and further improvement will occur as the weakest quarters of 2020 roll off, and we have taken several positive rating actions. We recently revised our ratings outlook on Macy’s (B+/Positive/B) to positive and upgraded Abercrombie & Fitch (BB-/Stable/--) to 'BB-' from 'B+'.
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Related Research
- Economic Research: U.S. Biweekly Economic Roundup: The April Jobs Report Came Up Short, May 7, 2021
- The Rebound U.S. Retail Has Been Waiting For Arrived In March, April 15, 2021
- Even With Restaurants Rebounding, U.S. Food Retailers And Suppliers Are Expected To Stay Strong In 2021, Mar. 16, 2021
This report does not constitute a rating action.
| Primary Credit Analyst: | Sarah E Wyeth, New York + 1 (212) 438 5658; sarah.wyeth@spglobal.com |
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