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Shoppers took a breather last month after January spending spree

Retail sales rose less than half a percent in February, compared to 4.9 percent the month before, and online sales recorded a loss.
Image: Shopper prices
Shoppers reined in their spending in February as retail sales grew by just 0.3 percent.Spencer Platt / Getty Images file

After a year of skyrocketing retail sales turbocharged by stimulus payments and online spending, consumers have started tapping the brakes. 

Retail sales rose by just 0.3 percent last month, compared to January, when growth was revised upward to 4.9 percent. That’s according to the latest report from the Commerce Department, released Wednesday.  

Online sales, which now account for 12.9 percent of retail sales, were actually down by 3.2 percent in February, compared to a 14.5 percent jump in January. Restaurants and apparel held up better than most other categories as consumers returned to dining out and bolstered their wardrobes for the office. But the sharp turn in sales has analysts wondering whether e-commerce can keep up its hot streak. 

‘“We were all spending our lives in digital for the last two years,” said Rob Garf, VP and GM for retail with Salesforce, which makes software to manage customer relations. “The big elephant in the room now is how are we going to continue on this tear of digital growth?

One answer: revive brick and mortar and open more stores. Garf said that during the past two years, some big retailers discovered that consumers who shop online, as well as in stores, tend to buy more. The industry is catching on. Despite supply chain problems, retailers announced more than 8,100 store openings last year, according to the National Retail Federation, more than double the number of closings. 

John Mulligan, the chief operating officer of Target, told investors this month that Target stores, handled more than 95 percent of the company’s $100 billion in sales last year, by fulfilling orders  made directly online or for pick-up at the store.  He said the online business also helped drive a 12 percent increase in in-store traffic.  95 percent of sales were directly online or online with pickup in physical stores 

David Bassuk, a co-leader of the retail practice at the consulting firm AlixPartners, said: “It used to be that retailers with stores would happen to have an online presence, and now the mindset has shifted.” Getting consumers to come into the store is a whole different game.”

And those efforts are unfolding on a whole different playing field, where in-store and online meet in a hybrid model that allows for lower levels of inventory and fewer workers.

Bed Bath & Beyond, for instance, recently remodeled its flagship New York store, cutting the number of products it offers almost in half. Instead of stocking a particular blanket in six colors or a door mirror in multiple sizes, it lines the shelves with QR codes shoppers can scan to order that blanket or mirror in the color or size they need and pick it up at the store or have it shipped to their homes. Best Buy used its extra space to open a cafe and a SodaStream bar.   

 “The longer the customer interacts with the retailer or in the store, the more product they’re likely to buy,” Bassuk said. 

Many department store retailers are downsizing, too, and they have been since well before the pandemic. It just speeded up the clock. Macy’s announced more than 100 store closures last year. Nordstrom shuttered 19 of its department stores in 2020. 

Both retailers are adding smaller and more streamlined stores in urban and suburban neighborhoods. Macy’s has opened five Market by Macy’s and Bloomie’s, which are less than half the size of traditional department stores. Nordstrom has rolled out seven Nordstrom Local stores that are no bigger than 3,000 square feet.

“Stores are being brought back into focus,” said Jill Standish, the head of the global retail practice at the consulting firm Accenture. “Retailers are looking at the store fleet and saying, ‘Do I really need this many stores in this ZIP code?”

Perhaps nothing changed the retail landscape more during the pandemic than the rise of shopping on social media platforms. Retailers that previously had little presence on social media started flocking to Instagram, TikTok, Twitter and gaming platforms like Roblox. Snap Inc. recently launched its Shopping Lenses, which lets people swipe through products from different cosmetics retailers, like MAC and Ulta, and try them on virtually. So far, the tool has driven more than 1.3 million try-ons, according to the company. 

Social media platforms are “almost becoming the shopping mall of this generation,” said Garf of Salesforce. “That is not going to just slow down, but accelerate.” Salesforce predicts orders on emerging commerce platforms will increase by 30 percent over the next year. 

But something else is accelerating, too, and fast — prices. The Adobe Digital Economy Index predicts inflation will cost consumers $27 billion more this year online for the same amount of goods.

“Retailers know inflation is real,” said Rod Sides, the U.S. retail and distribution leader with Deloitte LLP. “We’ll see what happens when we get to the point where we see discretionary spending go down.”

For people like Janice Grant, 27, a mortgage loan processor in Atlanta, that’s already happening. She said she has been rolling back her shopping for a month. “I’m not going to Chanel and buying a purse or going to Sephora to buy makeup,” she said. “I’m buying things I need.” Like toothpaste and trash bags and dog food, which she bought at Family Dollar, have nearly doubled in price.  

Grant, who takes home $2,400 a month in salary, said she’s considering getting a second job on the weekends, because prices are so high. 

“It’s a conversation that has been happening every day now with our friends,” she said. “It’s very scary.”