Consumer Interest in Shopping Dropping Fast

Summary

Consumers are finding other things to do with the time they used to spend shopping. We see headwinds for retailers, especially in the home improvement space. 

Comment

It’s nearing crunch time for retailers with the crucial holiday season approaching fast. Economists are expecting a rebound in retail sales in October after a disappointing 0.1% rise in September. They may be disappointed. We’ve discussed global search trends pointing to slower consumer spending.

The search outlook for the U.S. specifically has even more grim news for retailers. The latest changes in U.S. search interest show consumers continue to shy away from shopping in favor of other experiences. Interest in shopping is falling at its fastest pace in three years. 

 

 

Low consumer traffic continues to strangle both weak retailers and the malls and shopping centers housing them. The impacts are clear in retail-related REIT performance. Freestanding retail continues to deliver with a 2018 total return of 16.8%. Regional malls are underperforming freestanding, but still riding the rebound in department stores. Shopping center REITs have failed to rally and are -6% on the year. 

 

 

We see particularly strong headwinds for home improvement retailers. Home Depot and Lowes were riding high as the softening housing market drove a burst of home improvement interest earlier this year. That tide has turned.

The chart below shows six-month changes in seasonally adjusted search trends. Although we’re seeing improving interest in home financing searches, search interest in home improvement is falling at an accelerating pace. 

 

 

That means slim hopes for home improvement retail equities. The last chart shows average year-to-date total returns for industry groups in the S&P 500. Up nearly 20% on the year as recently as August, home improvement stocks are now -1.1% for 2018 on average. 

 

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