Retail Sales Gain, but It’s Not a Sign of Strength for Fashion


Retailers might be used to pouring over sales data first thing each day, but when it comes to reading the government’s official take on the monthly top line, they better make sure they’re fully caffeinated.  

Sales were indeed better in March, growing more than twice as fast as economists forecast, but the devil is in the details — and fashion is not faring nearly as well as the top-line numbers suggest. 

Consumers kept the U.S. economy out of recession last year and are still spending, powered largely by a strong job market with unemployment of just 3.8 percent.  

But just where shoppers are putting their dollars, and how much debt they’re racking up along the way, helps explain why even fashion’s strongest players are showing weakness in what is supposed to be a generally rosy economy. Lululemon Athletica Inc., for one, warned last month of a  “slower start to the year.” 

The Census Bureau said on Monday that March retail and food service sales rose 4 percent from a year earlier. On a seasonally adjusted basis, that translated into a 0.7 percent increase from February — much stronger than the 0.4 percent gain economists projected, according to FactSet. 

But most of that boost came from inflation, which is up 3.5 percent from a year ago, according to the Consumer Price Index. 

“These [sales] numbers are all in nominal terms, they are just current U.S. dollars, they don’t take inflation into account,” said Erik Lundh, principal economist at The Conference Board, in an interview. “You’ve got to be careful when you look at them because some of [the growth in sales] is just the effect of inflation.” 

For instance, the 0.7 percent overall sales growth compared with February, is reduced to a 0.3 percent bump up when inflation is accounted for, Lundh said. 

Lundh pointed to weakness at retailers selling big-ticket items like cars and appliances as well as the performance at fashion retailers. 

March sales at apparel and accessories specialty stores fell a seasonally adjusted 1.6 percent from February, but  inched up 1.4 percent from a year earlier. Meanwhile, department stores saw sales fall 1.1 percent from February and were down 2.5 percent from a year earlier. 

“It looks like the consumer’s still spending, even in inflation-adjusted terms, but they’re more cautious,” Lundh said. “Consumers are having to reprioritize to a certain extent. They’ve seen the credit card balances swell. They’re paying a lot, interest rates are so high.”

According to the Federal Reserve Bank of New York, U.S. households added $50 billion to their credit card balances in the fourth quarter, bringing credit card debt to a record $1.13 trillion.

“There’s going to be this adjustment on the consumer side, there’s going to be softer spending,” Lundh said. “For discretionary spending [including fashion], I’m not terribly optimistic over the next one to two quarters over consumers really shelling out on things they don’t need the way they did last year.” 

And then there’s competition from all the other things consumers need to spend their money on, particularly what economists tag as “services.”

That includes an extra $21.3 billion consumers paid for financial services and insurance, at a seasonally adjusted annual rate in February, the $17 billion spent on transportation and the $16.3 billion more spent on housing and utilities, according to the Bureau of Economic Analysis. 

Jack Kleinhenz, the National Retail Federation’s chief economist, said in a statement: “While sales were mixed [in March], several factors supported retail sales including an early Easter holiday, slightly larger 2023 tax refunds and stronger payroll growth over the last three months. Nonetheless, the increasing share of consumer spending going to services as prices for services rise remains a stubborn problem because it leaves less household income available to spend on retail goods.”



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