Client Letters: Brick & Mortar Retail Q1 2022 Takeaways
We have heard from the major brick and mortar retailers such as Walmart and Target and digested the first few weeks of May. A few takeaways mixed with what we are seeing on our eCommerce accounts:
eCommerce comps remain negative and continue to lag in-store comps - As reported in our last letter, March online spending was down 3% versus last year with brick & mortar up 11% versus last year. In April, Mastercard reported online spending down nearly 2% with in-store up 10%. We still believe the long term outlook for eCommerce remains incredibly strong.
Traffic returning to Marketplaces - All of our main marketplace accounts saw a positive rebound in traffic in May versus prior year. Although April was flat for most, January through March was particularly difficult with more stores open and the shift from “tvs to suitcases” as more dollars transitioned from product to services (e.g. travel). Apparel, grocery and jewelry were particularly strong as home and electronics struggled.
Key seasonal buying periods return - Brands focused on back to school, summer travel product buying and Prime Day look to remain strong. This is arguably the first time in 2 years in which there will be a full back to school and summer travel selling period. We believe this bodes well for products and services focused in those categories.
The majors are overstocked - Walmart and Target reported poor inventory to sales figures which illustrates how overstocked many retailers are as the supply chain eased and retailers failed to push out deliveries. We believe a portion of Q2 and Q3 will be heavily discounted to right size inventories. We also believe the inventory glut will provide off-price with strong leverage for buying at least through Q3.
Consumers are spending yet savings rates are decreasing and credit is on the rise - As savings rates have declined and credit is on the rise, we haven’t seen a dramatic decrease in sales and do believe the “buy now, pay later” plus lax credit standards will allow consumers to continue to spend. This is not a long term positive but we have yet to see an unhealthy consumer.
Bottom line: Q1 was rough for many retailers leading to lower comps and a glut of inventory. There are pockets of strength, and price increases have yet to dramatically impact consumer spending as we return to more historical consumer savings and debt levels.
Chat in a couple of weeks and thank you for the continued business,
Ryan Craver
Disclosure: Client Letters are intended for Commerce Canal clients, investors and employees. Commerce Canal and its officers, directors and employees provide this content for informational purposes only.
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