Solid Economic Growth Pushes Online Sales With Traditional Stores Revamping Their Fleet

Retail sales are inching forward this year with a strong nudge by online purchases fueled by millennials who prefer shopping on their smartphones and computers.

According to Kiplinger, a publisher of business forecasts and personal finance advice, e-commerce sales are expected to mushroom 15 percent this year, compared with 13 percent in 2016.

On the bricks-and-mortar side, in-store sales are only expected to rise at a 2 percent rate. Most challenged will be department stores, whose sales are sliding as they shutter some of their underperforming emporiums, which have become relics from the past.

One of those is Macy’s, which last year announced it would be closing 15 percent of its store fleet—or 100 stores. Some 68 of those stores are scheduled to be shuttered this year, including the Macy’s at Irvine Spectrum in Irvine, Calif.

Looking to its real-estate holdings to generate money, Macy’s is also planning to sell a portion of its large Chicago flagship with the hope of garnering $100 million in revenue. By the end of this year, Macy’s will have 600 outposts in its lineup compared with 800 in 2014.

Even though more people are working and salaries are up, shoppers are still being shy. “It is amazing when you look at how many dollars consumers are trying not to spend,” said Britt Beemer, a retail expert who surveys thousands of shoppers every week for his America’s Research Group. “They are still very cautious. They have a great view of the long-term future, but they are pessimistic about the short-term future.”

Recent reports by the U.S. Commerce Dept. show that personal income rose 0.4 percent in May, up from 0.3 percent in April. But consumer spending rose just 0.1 percent in May after climbing 0.4 percent in both March and April.

The gap between the May increase in income and the increase in spending drove the U.S. savings rate to 5.5 percent, the highest since last September.

Even auto sales have downshifted. In June, for the fourth straight month, automakers reported lower new car sales. The U.S. auto industry hit record sales in 2016 with 17.55 million new vehicles sold. But industry experts are expecting that this year new car sales will total 16.6 million.

There are some bright spots. The National Retail Federation is reporting there has been strong activity at building-materials stores, which saw a 14.2 percent jump in sales in April compared to the previous year. Also showing robust movement were furniture and home-furnishing stores, which saw sales rise 6.7 percent during the same period. Clothing and accessories stores saw a 2.1 percent increase while sporting-goods stores were hit hard and saw a 2.9 percent decline in April sales over last year.

Moving forward

Economists are still trying to estimate how fast the U.S. economy will expand this year. Most are expecting modest gross domestic product growth in the range of about 2 percent, which is on par with the last seven years.

President Donald Trump previously forecasted a 3 percent GDP jump, but that seems unlikely. “The difference between 2 percent GDP growth and more optimistic numbers is that a lot of people were banking on more things coming out of Washington, D.C., that would pump up the growth rate, but that hasn’t come to pass,” said Robert Kleinhenz, executive director of research at Beacon Economics. “But in 2017, we expect strong business investment spending. The last few years, business investment spending was pulled down by what was happening in the energy extraction/drilling sector. With lower prices for energy, there was less interest in doing new drilling, which was weighing down business investment. That drag is not as pronounced this year, and that is helping GDP growth as well as investment in the housing industry.”

This could be a banner year for business at the Port of Los Angeles, which is on track to process more cargo containers than ever. “Over the last couple of years, there was some economic weakness with our trading partners. That is less severe now. Even though they are not hitting on all cylinders, at least they are doing better,” Kleinhenz said.

The port last year handled 8.8 million 20-foot cargo containers, the most since the last banner year of 2006. This year, cargo-container traffic already is up 8.5 percent over last year.

At the same time, with the U.S. economy moving forward, imports are rising. In April, apparel and textile imports climbed 5.8 percent over last year. Nearly half of that came from China.

With the national unemployment rate at a 16-year low of 4.3 percent and the California unemployment rate slightly higher at 4.7 percent, economists wonder what effect this will have on salaries.

Many predict wages will rise to attract employees. In Los Angeles, wages have already increased with the minimum wage going up July 1 from $10.50 an hour to $12 an hour for companies that employ 26 or more workers. “Restaurants and hotels that employ minimum-wage workers are not going to pick up and move. They will have to make adjustments like raising their prices,” Kleinhenz said. “Or they will adjust their staffing if they can’t raise their prices.”

The minimum-wage increase could lead some apparel companies to consider moving out of state or relocating to areas outside of Los Angeles County, Kleinhenz added.

Over the next few years, housing prices are expected to climb in California and across the country as demand outweighs supply.

Economist David Shulman of the UCLA Anderson Forecast noted that U.S. housing prices have rebounded since their low point in 2011. They are now up 44 percent and only 5 percent below the prior peak in 2006.

With more people staying longer in their homes, existing U.S. home sales remain well below their peak of 7 million units in 2005 compared to an estimated 5.5 million units this year.

While single-family housing starts are slow, construction of new apartment buildings is booming, Shulman noted. During the depths of the recession, only 112,000 apartment units were started in 2009. Last year that surged to 392,000 units. Now that retail-centric real estate is seeing higher vacancy rates due to online shopping, more investors are putting their money into apartments and condominiums.

Over the next three years, economists are expecting developers to add 400,000 units a year to the U.S. apartment community. Apartments have been popular because it is harder to get credit to buy a home, millennials prefer living in urban areas, and they are also delaying getting married and having children.