Late last week, the U.S. Census Bureau released the July advance retail sales report. Results were mixed, but longer-term trends continued on the line of past momentum. What did the numbers show, and what should investors do with the information?
Highlights from the report
In July, retail and food-service sales were unchanged from June's numbers. However, sales were up 2.3% year over year -- a sign consumers are getting increasingly comfortable spending money. Year to date, retail and food-service sales are up 2.8% compared to the first seven months of 2015.
What industries were the winners? Internet-based retail, with a 1.3% month-over-month and 14.1% year-over-year advance. This has been the theme for a while now as e-commerce has been growing in the U.S. at a double-digit pace for several years. Other trends that continued in July's report were another advance in auto sales, furniture and home improvement, and health and personal care.
Of course, since the overall advance month over month was flat, that would imply some sectors of retail declined to offset the gainers. Excluding gas stations, which saw declines primarily due to the drop in fuel prices from last year, the biggest losers were electronics stores and department stores. Electronics and appliance stores were down 3.8% year over year, and department stores were down 4% year over year.
General merchandise, clothing, and sporting goods also had a relatively weak month, although this was to be expected. Many retail operators in those spaces forecast the summer months to be weaker as many burn through an excess of inventory and cope with a competitive environment that has been fostering heavy discounting.
What investors should focus on
Robust sales gains for autos, furniture, and home improvement are a good sign that the American consumer spending is healthy. The overarching theme, however, is the continued advance of e-commerce. Even though online purchasing isn't new, it is showing no signs of slowing down as it is on track to post another year of double-digit gains.
The trend is benefiting online leader Amazon (NASDAQ:AMZN), but other traditional retailers are picking up on the trend as well. Target (NYSE:TGT) has been growing online sales by about 30% over the last few years, and Wal-Mart (NYSE:WMT) just made big waves recently with its purchase of online peddler of goods Jet.com in hopes it can revitalize online sales growth.
Internet retail, as the single biggest gainer in the retail industry, is still reshaping the way Americans spend money. If you haven't done so already, it is time to review your investments to see how the businesses you own are handling the problem. Focusing on companies that have seen success with expanding online sales and leveraging other features of online ordering is a good place to start.
What investors should ignore
On the flip side, certain areas of the retail space haven't dealt with the internet problem as gracefully as others. Department stores and electronics stores have been struggling to keep up, as illustrated again by July's numbers.
Department stores slipped 0.5% month over month in July, and are down 3.9% year to date from the same period last year. A poster child for highlighting the woes of the industry is Macy's (NYSE:M), which just announced the closing of another 100 stores on top of a handful closed earlier in the year.
Electronics stores have also ironically suffered from internet retail. Technology has surpassed the brick-and-mortar-only format, and the 3% year-to-date decline in sales would suggest traditional peddlers of tech products aren't keeping up with consumer demands.
Final food for thought
While some negativity surrounded the July retail sales report due to flat month-over-month growth, it is important to bear in mind that sales are still up over 2% from last year. The report typically comes in mixed, with certain areas of the industry posting gains one month and declines the next. The longer-term trend is clear, though: Digital ordering of goods is taking control and should be a focus for investors going forward.