Following a soft start to Q2 2023, the consumer has strengthened in June and showed up stronger for the week of July 4th. Shown in the table below, all of the key retail categories for celebrating with friends and family – from food & beverage festivity supplies, to dressing up, to fixing up, to getting there – had meaningful improvement in trend from the May and June time period. This matches what retailers described during their Q1 updates: consumers were shopping closer to need, but at those critical times (including Easter and Mother’s Day) they showed up large. A modest improvement was also seen in June compared to May--which we discuss below--representing an inflection point from the January-April slowdown. We suspect that the strong July 4th showing and the inflection will give encouragement to retailers about their 2H 2023 prospects. For many retailers that comfort is justified, for others that have higher exposures to customers with a lot of floating rate debt or student loans, the second half is unlikely to be a reprieve and the 4th of July signal will prove to be a head fake.
Following May’s stability in retail sales, June looks to be stronger--still down from January’s blockbuster gain, but not on the decelerating glide path from then through April, thus forming a near-term inflection point in trend. In our opinion, fostering the inflection are the same factors we noted for vehicle sales (stabilization in the housing market, the strength in the equity market, the recession of the debt ceiling and banking crises, and the ongoing strength in employment) as well as lower gas pump prices year-over-year and deceleration in food inflation. We see an improvement in the rate of decline of traffic in June compared to May for grocers, shopping centers, and gas stations and for many brands like Walmart, Costco, Sam’s, Macy’s, and Kohl’s. Additionally, we see improvement for brands that cater to the affluent and the less affluent--as such, this seems macro in nature. Of note, this stabilization and inflection after a slowdown also happened in 2019, which we described in our Holiday 2022 and Beyond Outlook.
Back to the 4th of July celebration, the BevAlc category has celebrated all year long. As shown in the table below, the BevAlc retail category has enjoyed a solid 2023 where it has miraculously held onto its pandemic-era gains despite the reopening and robust return to bars, restaurants, casinos, and international travel. Moreover, this contrasts with other discretionary categories like higher-priced food-at-home items, apparel, and home goods that had an abysmal 1H 2023 as consumers were pressured by high grocery inflation and the choiceful shift in spend towards services. In fact, industry data suggests that in light of those budgetary pressures, consumer spending on BevAlc is shifting to off-premises, or retailers again. As on-premises typically grows faster than off-premises, that is a shift in consumer trends, and we would expect BevAlc retail to have a solid 2H 2023 as well.
In regard to the variance in visitation data during 1H 2023, the faster year-over-year growth for Total Wine & More is the result of more locations (+6.5%). Visits per location are down -2.7%--roughly similar to Texas’ regional champion Spec's. Total Wine has opened 17 new locations over the past year; we expect the opening rate to meaningfully increase over the next year as the brand takes advantage of the new real estate opportunities created by Bed Bath & Beyond and other failed/struggling retailers. (The number will be more than the 18 per year that we had penciled into our Total Wine report from last year.)