Earnings reports suggest that the sector is on the upswing, which is good news for retail properties.
For those who own, operate, and invest in retail space, it might be time for some broader relief, if big company financial results have anything to say.
Some big names have been doing quite well even ahead of the crucial holiday shopping season in the fourth quarter.
“There is a real sense of optimism heading into the heart of the holiday and shopping season, and recent announcements from top retailers is only adding to that,” Ethan Chernofsky, vice president of marketing at data firm Placer.ai, tells GlobeSt.com. “The combination of pent-up demand and a clear reason to shop drove significant retail success in the summer, and the same combination is already making itself felt in the early stages of the holiday retail season.”
Data from S&P Global Market Intelligence shows the retail sector of the S&P 500 to be in welcome strong shape. Out of the 22 companies in the sector index, 12 so far have reported earnings for the third quarter of 2021. Of them, 10 beat expectations while two missed. In the second quarter, all 22 beat earnings estimates.
Two of the beats, both in revenue and earnings, came Tuesday from Walmart—which benefited from its logistics power and supplier relations—and Home Depot’s windfall of consumers investing in home improvements during the pandemic, according to Nasdaq.
Target just released numbers showing 12.7% year-over-year comparable sales based on traffic. Even though 2020 was heavily in the pandemic, potentially a low starting point for a comparison, Target was one of those essential businesses delivering what consumers needed. The company saw sales growth of $15 billion over 2019, according to Minnesota’s Star Tribune Media, making the jump between 2020 and 2021 even more pronounced.
Similarly, TJX had open-only comp stores sales growth of 14%, year over year in its latest reported quarter. Net sales were 20% above last year in a category that fared well in a homebound consumer scenario.
Weekly retail foot traffic averaged across all categories is up 3.9%—and that’s compared to the same period in 2019, not in 2020 when many physical locations were shut down—according to data from Placer.ai. Inventories are much higher than a year ago at retailers, according to the Wall Street Journal, so there should be plenty of draw for consumers.
Strong performance in large retail doesn’t necessarily mean that smaller companies are doing well. But bringing shoppers in on foot to anchor stores increases the chance of spillover traffic to others. And when businesses are selling more, they’re more stable, which is probably better music to CRE ears than the latest version of the Little Drummer Boy.
Will things keep improving? “The prospect of nagging inflation appears to be a concern for consumers, but counterintuitively the U.S. economy saw increased retail spending,” Bradley Tisdahl, CEO of Tenant Risk Assessment, tells GlobeSt.com. “It’s unclear how long this will last, but larger retailers are likely to be better equipped to capture this spending by compressing margins to gain share of wallet amid an uncertain inflationary environment.” But there is a potential lump of coal: “Smaller independent retailers are less likely to weather inflationary pressures longer-term,” Tisdahl adds.