January Retail Sales = 2 Cheers for Stimulus.

This article solely reflects the personal views of the author and does not necessarily represent the views, positions, strategies, or opinions of IBM or IBM management.

With this week's Retail Census report, we have the initial view of January retail sales and the (close-to) final view on 2020. The headlines (NYT, CNBC, WSJ, Bloomberg) were almost universally positive, and overall, yes, the industry saw an uptick across the board.

Looking year-over-year (YoY), Total Non-Auto Retail and Foodservice sales grew by +6.2% vs Jan-2020, with sales at Essential Retailers growing +14% and sales an Non-Essential Retailers improving to a decline of -7.6%. This was the best month since September, the second best month during #Covid19, and reversed a 3 month slide in sales.

That being said, it's too early for a full-on celebration. First, it's important to remember that this data came from Advance Monthly Sales Report (MARTS) which is a sample of about 5,500 businesses rather than the larger Monthly Sales Report (MRTS) which covers 13,000 businesses and is released one month later. (The Census explanation is here. And for true data geeks, The Jason & Scot Show covered this in a podcast here). And the data is often revised (sometimes significantly) in future months. As part of this week's report, the December data was revised downward -- what we initially thought was a +4.3% gain was actually only a +3.7% gain.

The other factor is that January includes the impact of the initial tranche of $600 stimulus cheques. In total, the IRS has said it sent out over 147 million in payments, representing over $140 billion in stimulus. Undoubtedly, some of this flowed into the retail sector. This is amplified by the fact that January is a pretty light sales month (the second lowest overall; Feb is lowest), thus it doesn't take as much spending to move the needle up or down. January non-auto retail sales were $371 billion, which means it only took a gain of +$22 billion to generate a +6.2% sales increase vs. 2020. If, however, sales were $361 billion, the YoY increase would've been +3.3%, which would have resulted in a far different story ("the 4th straight month of decline").

I would guess that the impact of stimulus spending has been undercounted rather than overcounted, which means that January may be revised upward, and that the industry will continue to see a stimulus boost into February and March (February will also have a significant weather impact). All that is to say that it's way too soon to know the extent to which we're really in a recovery scenario. Among Essential Retailers, while there were upticks in Ecommerce, Grocery, and Mass / Discount, growth in Home Improvement and Health & Personal Care both slowed.

Among Non-Essential Retailers, there were upticks across the board, especially among Department Stores, although most segments are still well below year-ago levels.

I've been looking at the trends in Food & Beverage as a bellweather for consumer behavior. As I have written about before, this segment has seen the biggest change in consumer behavior during Covid, with $168 billion less spent in restaurants since last March and $90 billion more spent in grocery.

While there was a bit of an uptick in the January restaurant trendline, there doesn't yet appear to be a shift back to dining out vs. eating in. Until these numbers materially change, it's difficult to see us moving more significantly into The Next Normal.

Another trend to watch is the growth of Ecommerce. During Covid, Non-Store Retail sales (the vast majority of which is Ecommerce) has grown by 330 basis points to 24.8% of non-auto retail sales (NOTE: this number excludes foodservice. If anyone knows how / where the sales that flow through Door Dash, Uber Eats, etc flow, please share. I've not been able to dig that up anywhere).

As we get closer to comping Covid, it will be interesting to see if ecommerce penetration continues to grow, begins to flatten, or perhaps dips slightly as consumers return to stores. I'm betting that it may dip in April or May, flatten for the year, and then continue growing. Further, as I've commented on before, there's a LOT of variability in how store sales and non-store sales are counted, and this metric is rapidly becoming less useful as an indicator. The shift to digital -- whether shopping at-home, in-store, and anywhere else -- will continue, and whether a BOPIS or BOSS order is counted as an Ecom or Store sale doesn't matter at the topline (it can definitely matter for individual performance metrics, but that's for another article).

Based on initial January sales data, the overall economic picture is still pretty fuzzy. A bit more clarity will come when the January Consumer Spending data comes out at the end of this month. Until then, remember to do your part and support your favorite stores, brands, and restaurants. They need it!