The Changing Landscape of Brick-and-Mortar Stores in Today’s Economy

After registering two consecutive months of declines of 0.2% and 1%, on May 16, the advance sales report showed a recovery of 0.4% in retail sales for April. However, this modest rebound missed the Dow Jones estimate of a 0.8% increase. In this article, we will explore what this tepid growth means for the prospects of brick-and-mortar stores in today’s economy.

U.S. domestic consumption has been on a roller coaster ride over the past three years. People have gone from not being free enough to spending practically-free money to spend like there’s no tomorrow.

That, in turn, led to a not-so-transitory inflation, the hottest since the 1980s, forcing the Federal Reserve to implement ten successive interest-rate hikes in a little over a year to take the Fed funds rate to a target range of 5% to 5.25%.

With the stash of stimulus cash fast dwindling, average American consumers have been forced to rein in their urge to splurge to prevent inflation from biting harder. The Survey of Consumer Expectations for April carried out by the New York Fed showed that the outlook for spending fell by half a percentage point to an annual rate of 5.2%, the lowest since September 2021.

Could online retailers fare better with a complementary offline presence?

  • Yes
  • No
  • Can’t Say

While consumption may be undifferentiated from a macroeconomic perspective, businesses have evolved to tailor their offerings to cater to various consumer segments. Despite current economic uncertainties and hardships, high-income segments have been relatively unaffected, with affluent patrons queueing up for finer things in life on offer from the likes of Tiffany & Co. and LVMH.

However, middle-income consumers have been forced to go bargain hunting to squeeze out the maximum possible value from money which has gotten dearer. Hence, they have been forced to trade down to budget-friendly retailers, leaving the businesses that offer something in between wrong-footed and stranded.

The divergent prospects between off-price retailers and their middle-of-the-road peers are evident from the Street expectation regarding business performance. The fiscal first quarter revenues of Burlington Stores, Inc. (BURL) are expected to grow by 13% year-over-year compared to an 8.7% year-over-year decline at Macy's, Inc. (M).

Although budget retailers have lost sales from low-income consumers, that loss has been offset by increased business from the middle-income consumer segment. Continue reading "The Changing Landscape of Brick-and-Mortar Stores in Today’s Economy"