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What the Retail Sales Data Means

12:00 AM, Aug 18, 2012 • By IRWIN M. STELZER
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That should be no surprise. I prowl malls whenever I travel on business, and can’t help noticing that Apple stores swarm with excited customers while copycat Microsoft retail outlets echo to the footsteps of the few curious who drop in. It takes more than copycat stores to generate sales.

Consumers’ addiction to discounts is not confined to those at the lower end of the income scale. Gap’s sales jumped 10 percent in July, in part because of more attractive merchandise, but also because of heavily promoted discounts. And Coach, the high-end handbag and leather goods retailer, reports that it failed to grow significantly in the second quarter because it stopped offering discount coupons at its factory outlet stores. Coach has reinstated coupons.

There is more news from the retail sector that tells us a great deal about the American economy. Sales at Staples, the office supply chain, and Best Buy, the electronics retailer, are dwindling, so much so that its former managers are attempting to wrest control from the new bunch. The likely cause of these once-mighty retailers problems: competition from discounters such as Walmart and Internet sellers such as Amazon, combined with those companies’ inability to come up with viable competitive responses. Amazon’s sales were up 29 percent in the second quarter, as it continues to sacrifice profits in order to woo customers from shops and malls, and to invest in distribution centers that some day might provide same-day delivery, a thought that must keep other retailers awake at night.

Sales data also suggest that the day on which retailers could rely on free-spending teens is over. Abercrombie & Fitch, the trendy chain of choice for young customers attracted to its dark, noisy stores, featuring posters of well-toned male midriffs, saw its second-quarter earnings drop by more than 50 percent on very disappointing sales, especially in Europe but also in the U.S. Teenage unemployment both in Europe and the U.S. is around 25 percent, but European sales were also hit be the recession. In the U.S., Abercrombie’s experience parallels that of other chains catering to this age group, where almost one-in-four 16 to 19 year olds cannot find work, and parents seem unwilling to support the lifestyles to which these teens had become accustomed.

Higher-end retailers are doing better, although the reduced flow of well heeled European tourists to New York and other cities is a negative. And well established specialty brands continue to grow: perhaps in response to the impetus and incentive provided by the runaway sales of 50 Shades of Grey, Limited’s Victoria Secret, which sells £4 billion of its fetching lingerie annually, racked up a 12 percent increase in sales.

There you have it. Retail sales don’t tell us much about the outlook for the economy or for further Fed easing: one rose does not a summer make. The Internet remains a source of Schumpeterian creative destruction, with Amazon doing a great deal of the damage to office suppliers and electronics retailers. Imitating Apple’s retail success is not easy. High levels of unemployment among youngsters are hitting their preferred retailers. Overseas sales by U.S. companies are shrinking, as Europe lurches into recession. And sex still sells.

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