Retail Sales and the Internet

Retail sales in February fell short of economists’ forecasts, leaving investors to question the trend of the economic expansion. In a consumer-led economy like ours, retail sales have historically been a good gauge of consumer demand. Seven of the 13 retail sectors lost ground last month, with building materials, including home improvement and garden supplies, plunging 4.4 per cent. Two of the five expanding sectors, gas stations and drug stores, are arguably non-discretionary, and their results are enhanced by higher pump prices and drug costs. Food and beverage sales, including sales in grocery stores and liquor stores, plunged 1.2 per cent last month, its worst monthly showing in more than a decade, according to Bloomberg.

US retailers have benefitted from innovation, technology and a tilt toward the internet. The strength of the internet trend is indisputable: over the last 20 years, e-commerce sales have exploded at a 10.5 per cent annualized rate, while department store sales have contracted 2.2 per cent annually during the same period. Since 1992, US retail sales have expanded 68 per cent on an inflation-adjusted basis, yet retail employment has grown only 23 per cent. The difference can be chalked up to technology-led productivity gains, which have led to higher profits.