Spending, CPI, demographics of overall market

The Impact of COVID-19 on Small Businesses – 6/27 Update

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Small Businesses are at the core of our nation’s economy and the challenges they face are important to everyone. To better understand the impact of COVID -19 on these businesses and aid decision makers in serving their urgent needs, the U.S. Census Bureau directly reached out to small businesses. For the Survey, the Census Bureau defined a small business as a single location business with employment between 1 and 499 and receipts of at least $1,000.

Consisting of 16 questions, this 5-minute survey reached close to 1 million businesses split across a 9-week rotation to reduce burden and lessen survey fatigue. The survey included small businesses in every area of the U.S. Economy. This initial survey began in the week ending 5/2/20 and was completed in the week ending 6/27/20 so we are able to track the evolution of the COVID-19 impact over 8 full weeks.

The results are first categorized by major, 2 digit NAICS code classification. Slightly more specific data (by 3 digit NAICS code) also became available so that we are able to more closely track elements which are relevant to the Pet Industry. Here are the 14 “pet relevant” groups for which we have compiled data:

  • National Avg: Covers All Major Areas with a few Exceptions like Agricultural Production and Religious Organizations
  • Product Related Groups:
    • 31-33: Manufacturers – All manufacturers
      • 311 – Food Manufacturers (Both Human & Animal)
    • 42: Wholesalers/Distributors – Wholesalers/Distributors of any type products
      • 424 – Distributors of Nondurable Goods (Includes food and nondurable supplies)
    • 44-45: Retail Trade – This includes everything from gas stations to Pet Stores (#453910). No restaurants
      • 444 – Building Materials/Hardware/Farm
      • 445 – Food & Beverage Stores
      • 452 – General Merchandise Stores
      • 453 – Miscellaneous Retailers (includes Pet Stores)
      • 454 – Nonstore Retailers
  • Services Related Groups:
    • 54: Professional, Scientific and Technical Services – Legal, Advertising Agencies, etc… and Vet Clinics (#541940)
    • 81: Other Services – Funeral Homes, Barber Shops, Auto Repair, etc … and Pet Care Services (#812910)
      • 812 – Laundry & Personal Care (includes Pet Care Services)

The data from each group has been bundled into 3 charts showing the group’s responses to 8 particularly relevant questions about the impact of COVID-19.

Here are the charts and the questions that will be answered on each:

Chart #1: Impact of Covid-19 on Your Business

  1. Overall, how has this business been affected by the COVID-19 pandemic?

Chart #2: Key Business Elements – Weekly Changes

  1. In the last week, did this business have a change in operating revenues?
  2. In the last week, did this business have disruptions in its supply chain?
  3. In the last week, did this business temporarily close any of its locations for at least one day?
  4. In the last week, did this business have a change in the number of paid employees?

Chart #3: Government Assistance & Your Outlook For The Future

  1. Since 3/13, has this business requested/received financial assistance from Paycheck Protection Program (PPP)?
  2. Since 3/13, has this business received any financial assistance from any Federal Program?
  3. In your opinion, how much time will pass before this business returns to its usual level of operations?

We are not going to review each group in this report. We will take a closer look at the Overall Retail Trade (NAICS 44-45) and 3 retail subchannels – Miscellaneous Retailers (includes Pet Stores), Nonstore Retailers and Hardware/Farm Stores. We also will review Personal Care Services which includes Pet Care. At the conclusion of the report we will make the data for all 14 groups available for you to download. You can then pick the ones that are most relevant to your particular business.

A word of caution: Remember, this data is only for the small businesses in any particular classification. It doesn’t include the big chains, which could be impacted differently because of their size, capabilities or resources.

Let’s get started with the Retail Trade

  • There is a big negative impact on the retail trade,76.0%. However, it is still faring better than the overall market which stands at 82.7% negative as of 6/27.
  • The negativity has moderated but the readings for all response groups have basically plateaued since 6/13.

  • Every measurement on this chart began moving in the right direction but most have plateaued since 6/13. In terms of revenue, 40% still showed a decrease which is still better than the national average, 42.6%. Retail outlets are also doing better than the Nation overall at generating increased $ – 29.1% to 19.7%.
  • Supply chain problems are high but stable. Much of the country was opened up in June so temporary closures only affected 15.3% of businesses – a big drop from 43.7% eight weeks earlier.
  • The employment situation has improved, especially in terms of businesses decreasing the number of employees. However, that situation has also become static, with the same number adding as cutting and 80% maintaining the status quo.

  • 97% of retail trade businesses that applied for PPP funds have received payment. In fact, 79% of all small retail businesses have received some form of government assistance.
  • In terms of outlook, although the number of businesses now expecting little or no effect by COVID-19 has grown significantly from 5.1% to 13.3%, this is a small segment. The most popular forecast (40.8%) is over 6 months for a return to normal. When you combine that with the 10.3% who believe that things will never be normal again you get over half, 51.3% who think that recovery will take considerable time. However. This is better than the overall national average of 53.6%

Now let’s drill a little deeper – Miscellaneous Stores, which includes Pet Stores

  • While Pet Stores were generally deemed “essential”, most stores in this group, like gift shops, art dealers and used furniture stores were not, which explains the high initial negative impact. It did moderate slightly in May but turned sour in mid-June.
  • After peaking at 16.7% on 6/6, the number of businesses reporting a positive or little no effect on their business fell to 13.2% by 6/27.

  • The change in revenue started in the right direction but has basically plateaued. Although businesses reporting decreased revenue have actually increased since 6/13.
  • Supply chain problems remain a big factor and they too have gotten worse since 6/13.
  • Closures have been cut in half but still affect almost 1/3 of the group (31.8%)
  • The employment situation has gotten significantly better but there are still twice as many businesses losing employees (14.9%) as those adding employees (7.4%).

  • The PPP funds have been distributed. 96% of businesses who applied have received funds. In fact, 81.5% of this group have received some form of federal aid.
  • This group’s projected recovery time has gotten worse since mid-June. Now 49.1% say that it will be over 6 months until a return to normal and 14.6% say normal will never return. That is 63.7% of these businesses.

Next, let’s look at Nonstore Retailers

  • Although the negative view is less than at the beginning, it is trending up. However, so is the positive view, The biggest decrease occurred in little/no effect which fell from 14.2% to 8.7% in the week of 6/27.

  • The revenue situation improved in May but has plateaued in June. 22-24% are posting increases. 35-37% report no change and about 40% are seeing decreased revenue.
  • Supply chain problems increased in mid-June but improved by 6/27, Closures improved in June but were up and down on a weekly basis.
  • The employment situation generally became more stable in June as hiring and layoffs both slowed. Although there was a little more turmoil in the week of  6/27.

  • 98% of businesses that requested PPP have received funds and 72% of the businesses in this group have received some form of government assistance.
  • Their overall projection for recovery grew worse in June. By 6/27 43.3% said it would take over 6 months and 9.7% said normal would never return. That’s 53% which is about equal to the National Average (53.6%) but worse than Total Retail (51.3%), which is somewhat surprising for a nonstore group.

Our final Retail Trade group is Hardware/Farm Stores

  • Except for an uptick in negativity during the week ending 6/6, their impression of the impact of COVID-19 on their business has steadily improved. By 6/27 their negativity score (55.6%) was the lowest of any retail group that we measured, including Food & Beverage Stores at 59.4%.

  • Their revenue began moving in the right direction and by 6/13 the number with increases exceeded the number with decreases. It has become relatively stable – about 33% up, 30% down and 37% with no change.
  • Supply chain problems are stable, but high at 56+%. Closures are down dramatically and were only 6.7% as of 6/27.
  • Hiring has slowed, after peaking during the week of 6/6 but still exceeds layoffs. 81.4% are now showing no change in the number of employees.

  • 99% of businesses that have applied for PPP have received their money and 75.4% of the group has received some form of federal assistance.
  • This group projects a speedier recovery than any other retail group. 38.3% expect a return to normal in 6 months or less but 26.6% say that there has been little or no effect on their business. That totals 64.9% which is much better than the National Average of 46.4% and 48.9% for Total Retail.

Finally, let’s look at the Personal Care Services Channel, which includes Pet Care Services

  • This segment was hugely impacted by closures but even opening up has not much improved their assessment of the situation. The negativity is still extraordinarily high at 91.5%. Although it has moderated slightly, almost 2/3 of the businesses, 65.2% still see the situation as extremely negative.

  • The revenue situation has gradually improved but 50.6% of businesses are still reporting a decrease in $ as of 6/27.
  • Supply chain disruptions are improving and are lower than many other channels. Closures have decreased by 54% since May 2nd but still affect 3 in 10 businesses (30.8%).
  • The employment situation is still negative – 7.8% hiring; 19.5% laying off, but it has reached its highest level of stability as 72.7% maintained the status quo in the week of 6/27.

  • 94% of businesses that applied for PPP have received funds and 84.4% of the group has received some form of federal assistance, which is better than the National Average, 77.0% and the Total Retail Trade, 78.7%.
  • Their outlook is rather bleak and almost the exact opposite of Hardware/Farm stores. 47.9% project over 6 months for a return to normal while 19.0% say normal will never return. That totals 66.9%, two thirds of all personal care outlets.

As you can see from our examples, the specifics can vary widely by business category. As the economy began re-opening the situation was generally improving. However, we have seen a resurgence in the virus. This is leading to reimplementation of some business restrictions and has produced an overall feeling of uncertainty among consumers. Until we have a stability in health, a return to normalcy in business will be greatly slowed. COVID-19 has had an especially negative impact on U.S. Small Businesses. Even small businesses in channels that are showing overall growth during the crisis, like Hardware/Farm and Nonstore, are having serious problems. The overall national growth in these channels is being driven by the “big guys”, like Home Depot and Amazon. The overall projection for a return to normal for small businesses is increasingly over 6 months, which would put it in 2021.

That concludes our analysis of this initial survey. As you can see the situation is far from over. Hopefully the Census bureau will conduct periodic future surveys so that we can fully monitor the progress of small businesses through this crisis.

Finally, as we said, more data is available for you. Files with the specific data/charts for all 14 business categories that we identified as relevant to the Pet Industry (including those used in this report) are available for download. Each file is a 1 page word document with 3 COVID-19 impact charts for a specific business category. There is no commentary – just data. Pick the ones that are most relevant for your business and share them with your associates. STAY SAFE!

National Average & Major Business Categories

National Avg Manufacturers Whlsrs/Distribs Retail Trade Science/Tech Other Services

More Defined Supply Chain Categories

Food Mfg Distrib Nondurables

Drilling Down into the Retail Trade

Bldg/Hdwe/Farm Food & Bvg Gen Mdse Strs Misc Stores Nonstore Retailers

Finally, Personal Care Services (includes Pet Care)

Personal Care

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Pet Services Spending (Non-Vet) $8.81B (↑$0.95B): 2019 Mid-Year Update

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The US BLS just released their Mid-Year Update of the Consumer Expenditure Survey covering the period 7/1/2018 to 6/30/2019. In our analysis of Pet Supplies Spending we saw a 24 month lift come to an end. Tariffs drove prices up and Spending turned sharply down across virtually every demographic segment in the 1st half of 2019 . Pet Food Spending also turned down, but in the 2nd half of 2018, in reaction to an FDA warning on grain free dog food. Now we turn our attention to Pet Services. The Mid-year numbers show that spending in this segment was $8.81B, up $0.945B (+12.0%) from the previous year. This segment is known for consistent, albeit small increments of growth. In 2018 that changed. The 1st half saw a $1.1B increase followed with an additional $0.85 lift in the 2nd half. This annual $1.95B increase was by far  the biggest $ increase in history. In the 1st half of 2019, Services spending plateaued, but at this unprecedented, elevated level. This deserves a closer look. First, we’ll review recent Services spending history since 2013.

Here are the 2019 Mid-Year Specifics:

Mid-Year 2019: $8.81B; ↑$0.945B (+12.0%) vs Mid-Yr 2018

Jul > Dec 2018: ↑$0.85B

Jan > Jun 2019: ↑$0.09B

Pet Services is by far the smallest industry segment. However, except for 2010 and 2011, the period immediately following the Great Recession, it had consistent annual growth from 2000 through 2016. Spending in Food and Supplies have been on a roller coaster ride during that period. Services Spending more than tripled from 2000 to 2016, with an average annual growth rate of 7.6%. Spending in the Services Segment is the most discretionary in the industry and is more strongly skewed towards higher income households. Prior to the great recession, the inflation rate averaged 3.9% with no negative impact. The recession affected every industry segment, including Services. Consumers became more value conscious, especially in terms of discretionary spending. Services saw a slight drop in spending in both 2010 and 2011, but then the inflation rate fell to the 2+% range and the segment returned to more “normal” spending behavior. In mid-2016 inflation dropped below 2% and continued down to 1.1% by the end of 2017. This was primarily due to increased competition from free standing businesses but also an increase in the number of Pet Stores and Veterinary Clinics offering pet services. While prices still went up slightly, there were deals to be had and consumers shopped for the best price. There was no decrease in purchase frequency. Consumers just paid less so spending fell slightly. In the 2nd half of 2017 spending turned up again. More Consumers began to take advantage of the value and convenience of the increased number of outlets offering Services. This deeper market penetration caused Services Spending to take off in 2018, up $1.95B, by far the biggest annual increase in history. Prices turned up again in the first half of 2019, increasing  2.8% from 2018. However, Services essentially “held their ground” as  spending inched up $0.09B. With an annual growth rate of 8.2% since 2000, Services have become more prominent in the Industry.

Let’s take a closer look at some spending demographics – Age and Income.

In the graphs that follow we will compare spending for the Mid-year 12 months ending 6/30/19 to the previous period ending 6/30/18. In our graphs we will also include the 2018 yearend $pending. This will also allow you to see the spending changes in the 2nd half of 2018 and the 1st half of 2019.

The first graph is for Income, the single most important factor in increased Pet Spending, especially in Services.

Here’s how you get the change for each half using the Over $70K group as an example:

Mid-yr Total Spending Change: $6.43B – $5.62B = Up $0.81B (Note green outline = increase; red outline = decrease)

  • 2nd half of 2018: Subtract Mid-18 ($5.62B) from Total 2018 ($6.31B) = Spending was up $0.69B in 2nd half of 2018.
  • 1st half of 2019: Subtract Total 2018 ($6.31B) from Mid-19 ($6.43B) = Spending was up $0.12B in 1st half of 2019.

  • Both the Over and Under $70K groups had a 12-month spending increase. However, Over $70K was responsible for 86% of the $0.94B national lift. The Under $70K group decreased spending in the 1st half of 2019 so their overall increase was produced solely by a lift in the 2nd half of 2018.
  • The individual groups over $70K all showed growth in both halves, but it was minimal in the 1st half of 2019. The Over $100K groups were responsible for 81% of the total Services increase.
  • The lower income, $30>50K group had a spending pattern similar to the highest income groups but their percentage increase was more. Spending was up 47%. The lift in this group was driven by Retirees (Avg Income: $42K) as they chose to fulfill their real need for Pet Services. This group is the only reason Under $70K registered an increase.
  • Spending in the Under $30K group was essentially flat. The lower middle income, $50>70K group had the biggest decrease and it came from a big drop in the 1st half of 2019, following a small lift at the end of 2018.
  • Income is the biggest factor in choosing the discretionary convenience of Pet Services. However, we can’t ignore “need” as was demonstrated by the retiree driven performance of the $30>50K group.

Now, Services’ Spending by Age Group.

  • The spending lift in both halves by the 65+ yr olds and the highest income 45>54 age group mirrors what see saw in the income category. Plus, their major lifts came in different halves.
  • The 55>64 yr old Boomers had the only overall decrease. It was minor and spending was flat in the 1st half of 2019.
  • All groups under 45 had the same pattern with a spending lift in the last half of 2018, followed by a drop in the first half of 2019. The size of the drop grew with age and spending. The 25>34 yr olds were flat. The others spent more.
  • It’s obvious that the biggest positive movement in Services Spending in the 1st half of 2019 came from oldest groups.

Now let’s look at what is happening in Pet Services spending at the start of 2019 across the whole range of demographics. In our final chart we will list the biggest $ moves, up and down by individual segments in 11 demographic categories. Remember, the lift in the 1st half of 2019 was $0.09B, much less than the $0.85B in the 2nd half of 2018.

The first thing that is readily apparent is that the $ changes from winners and losers in each category tend to cancel each other out. This is similar to a pattern that we saw in Food, which also had a minor increase in spending during the 1st half of 2019. The $0.09B increase in Pet Services came from 46 of 80 demographic segments (58%) spending more, just 2 more than the 44 in Pet Food.

The positive impact on Services spending in the 1st half of 2019 by older Americans is obvious from theses 6 winners:

  • 65+ Yrs
  • $30>49K
  • Retired
  • No Earner, Single
  • Homeowner w/o Mtge
  • Silent/Greatest Generations

Like the Food and Supplies segments, Single CUs also had a good start to 2019 in Services spending, winning in 3 demographic categories. However, for Services, the “driver” was No Earner, Singles.

It wasn’t all older groups as 3 “usual” winners came to the top – White, Not Hispanic, BA/BS Degree and Suburban.

On the “losing” side we see evidence of the slight downturn in spending by the younger groups in the performance of these segments:

  • 35>44 Yrs
  • Gen X
  • 3 People
  • Married, Oldest Child <6
  • Renter
  • Central City

We should also note that Gen X (-$0.06B) barely beat out Millennial/Gen Z (-0.057B) for the “losing” spot so the decline was basically universal in the youngest groups. 2 Earner CUs are also more common in these groups.

In 2018 the Services segment reached a new level of prominence in the Pet Industry. However, in 2019 growth seems to be slowing. How did we get here and what comes next?

We have noted that by 2017 the number of outlets offering Pet Services had radically increased. This created a highly competitive market and the inflation rate dropped to near record lows. Value conscious consumers saw that deals were available, and they took advantage of the situation. However, they didn’t increase the frequency of purchase. They just paid less. This drove overall Pet Services spending down in the 1st half of 2017. The segment started to recover in the 2nd half but not enough to prevent the first annual decrease in Pet Services spending since 2011. However, it was a start. In 2018, more consumers started to recognize the convenience offered by more outlets. The latest big food upgrade was also winding down. The result was that Services started a deeper penetration into the market, especially in the younger groups. The <45 groups spent $1.47B more on Services in 2018, 74% of the total $1.95B increase in the segment. As such, a slight downturn in 2019 is not unexpected. They may just have been value shopping. However, the oldest groups did seize the opportunity. They have a real need for Pet Services. Now they are convenient and more affordable.

Will this continue? What can we expect in the 2nd half of 2019? We can’t say for sure, but inflation could be a factor. In the 1st half of 2019 Services prices were up 2.9% vs 2018. This also may have contributed to the reduced spending by some segments. However, the rate slowed to +2.2% in the 2nd half. This is historically a more typical inflation rate for this segment. It probably signals a return to slow, consistent growth for Services. We’ll see when the full year spending data for 2019 is released in September.

 

 

 

 

Retail Channel Monthly $ Update – April Final & May Advance

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Time for our monthly update on U.S. retail sales by channel. The current COVID-19 crisis has caused turmoil in the Retail Marketplace. Consumer spending behavior has changed and continues to evolve. In this report we will track the changes and migration between channels. We will do that with data from two reports provided by the U.S. Census Bureau.

The Reports are the Monthly Retail Sales Report and the Advance Retail Sales Report. Both are derived from sales data gathered from retailers across the U.S. and are published monthly at the same time. The Advance Report has a smaller sample size so it can be published quickly – approximately 2 weeks after month end. The Monthly Final Report includes data from all respondents, so it takes longer to compile the data – about 6 weeks. Although the sample size for the Advance report is smaller, the results over the years have proven it to be statistically accurate with the final monthly reports. The biggest difference is that the full sample in the Final report allows us to “drill” a little deeper into the retail channels.

This means to get the full picture in our monthly channel update we need to look at the latest release of both reports. We will begin with the Final Retail Report from April and then move to the Advance Retail Report for May. This will also allow us to better track the consumers’ evolving spending behavior in terms of channel migration.

Both reports include the following:

  • Total Retail, Restaurants, Auto, Gas Stations and Relevant Retail (removing Restaurants, Auto and Gas)
  • Individual Channel Data – This will be more detailed in the “Final” reports and we fill focus on Pet Relevant Channels

The information will be presented in detailed charts to facilitate visual comparison between groups/channels of:

  • Current Month change – % & $ vs previous month
  • Current Month change – % & $ vs same month in 2019
  • Current YTD change – % & $ vs 2019
  • Monthly and Year To Date $ will also be shown for each group/channel

We’ll start with the April Final report. This was the depth of the crisis (hopefully). The impact is very visible. First, we will look at some major retail groups. (Note: The Data in all graphs is Actual, Not Seasonally Adjusted)

It is slightly better ($8B) than the Advance report projected a month ago. Although Restaurant $ales were $2B less than expected, the “Relevant Retail” segment was $10B better. Gas Stations also were $1B more than the early numbers but The Auto Segment was “spot on”. However, It was still by far the worst year over year monthly performance in history.

In a “normal” April we are generally into the Spring Lift as consumers begin to turn to outside activities. However, the widespread closures and “stay at home” guidelines generally ended that behavior.

Now, let’s see how some Key Pet Relevant channels were doing in April.

  • Overall – Any binge spending ended in April as only Internet and Hardware/Farm had a March to April increase.
  • Building Material Stores – This group typically has their biggest annual lift in Spring. It appears that this is unchanged. Farm Stores did especially well with spectacular increases in all measurements. Although Sporting Goods stores are not included in this group, they have a similar Spring lift pattern. However, the results are totally different. You truly see the impact of the sports/recreation “shut down”.
  • Food & Drug – Although the March binge buying is over, Supermarket sales continue with strong growth. Drug Stores also had a March sales rush on essentials, but that clearly ended in April as sales are below April of 2019.
  • General Merchandise Stores – Although the March binge buying is over, sales in $ Stores, Clubs/SuperCtrs are both up, with $ Stores showing the most growth. Most traditional Department stores were closed and shopping in many Discount Department stores was often limited to essentials. The result is that sales were down -44.5% vs April 2019.
  • Office, Gift and Souvenir Stores – Most of these stores are deemed non-essential. You see the result.
  • Internet/Mail Order – “Stay at home” has further accelerated this channel’s growth. This will likely continue as the crisis has introduced many new consumers to online shopping.
  • A/O Miscellaneous – This is a group of small to midsized specialty retailers – chains and independents. It includes Florists, Art Stores and Pet Stores. Pet Stores generally account for 22 to 24% of this group’s total sales. Although Pet Stores were generally deemed essential most stores were not. The group was up 21% YTD in February which is the only reason that they are still “hanging on” to a YTD increase.

April was certainly a terrible month for retail spending, the biggest Total Retail $ drop in history. The March binge/panic buying ended in April and we saw the huge negative impact of a full month of non-essential business closures. In May, a very slow reopening of the economy began. Let’s see how it is progressing. Here are the Advance numbers for May.

April was the biggest spending drop in history. May was $95B better but still $42B (-7.7%) below May of 2019. That  gives us an idea of how serious the current situation is and how long the recovery may take.

Total Retail – Total Retail spending fell $42B, -7.7% vs 2019, edging out March for the 2nd biggest drop in history. Remember, 2020 started off strong. Spending through February was up $60B, +6.6% versus 2019. Then came the COVID-19 crisis and now it is down -$116B – a $176B turnaround in just 3 months.

Restaurants – Spending increased $11B over April but was still down $26B vs 2019. The year started out good, up $9B (+8.1%) through February. Then social distancing began, and many restaurants closed. Delivery and curbside pickup couldn’t make up the difference as spending fell $78B in 3 months so this group is now down $69B YTD.

Automobile & Gas Stations – If you can’t go out, except for necessities, then your car becomes less of a focus in your life. Buying a car was definitely less of a priority. Auto Dealers, both new and used, tried to combat this with some fantastic deals and a lot of advertising. It appears to be helping but sales were still down $7B versus 2019. In terms of Gas Stations, May is traditionally the beginning of the vacation travel season but not in 2020. Prices are still down but people are still not driving as much as they used to, whether for commuting or road trips.

Relevant Retail – Less Auto, Gas and Restaurants – Many non-essential businesses began to shutter their doors in March but there was also a rash of binge/panic buying for “necessities” and a big lift in groceries as consumers focused on home cooking which drove spending up $19B. Then came April. With a full month of closures and an end in binge buying, spending dropped $34B, -10.7% from March and 16B, -5.2% vs April 2019. In May, the overall market began a slow reopening so spending began to move in the right direction. Nonstore and Grocery, along with SuperCenters/Clubs & $ Stores continued their growth. The spring lift in the Hardware/Farm channel got even stronger and the group which includes Sporting Goods, Hobby & Book Stores bounced back to beat their May 2019 numbers. The Relevant Retail group now has positive numbers in all measurements – vs last month, last year and year to date.

Now let’s look at what is happening in the individual retail channels across America. In May, consumer spending in the relevant retail market returned to positive numbers. Let’s see where the $ came from. These groups are less defined than in the Final Monthly reports and we will look across the whole market, not just pet relevant outlets.

Every group had a May sales increase over April, but performance was mixed when it came to vs 2019 and YTD. 

Observations

April was a full month of stay at home, widespread closures and reduced discretionary spending so it was an easy number to beat. However, only 7 of 13 groups had positive numbers for May 2020 vs 2019:

  • Nonstore Retailers – Even more consumers are online shopping.
  • Food & Beverage, especially Grocery– Restaurant $ are still down so consumers continue to eat & drink at home.
  • Sporting Gds/Hobby/Books – Stores reopened and consumers started to return to outside recreational activities.
  • Bldg Materials/Garden/Farm – A big Spring lift as consumers focus “on their home” even more than usual.
  • SuperCtrs/Club/Value/$ Strs – Sales slowed in April, but they came back strong in May and it was enough to turn the whole Gen Mdse channel positive. This group of stores offers great value which is still a consumer priority.

Regarding the Individual Large Channels

General Merchandise Stores – Some Regular Department stores began reopening and Discount Department stores held their ground, so this cut the losses for Department Stores. Club/SuperCtr/$ stores provided the big positive force. In April consumers dialed back their panic buying and spending on discretionary items was also down significantly. In May we saw consumer spending return to a more normal pattern in the big and small stores that promise value shopping.

Food and Beverage, plus Health & Personal Care Stores – The Grocery segment is still being driven by increased Food sales due to restaurant closures, up 14.3%, +$8B. Sales in the Health, Personal Care group are up minimally from April but remain down overall. Many Personal Care stores are slow to reopen and Drug Stores sales are essentially flat.

Clothing and Accessories; Electronic & Appliances; Home Furnishings – As stores reopen there was a spectacular increase in sales over April. However, May $ were still down big time from 2019. They all had the same pattern, with Clothing Stores being the most extreme. Their sales were up 209% from April but still down 63% vs 2019 and 43% YTD. These channels have a long way to go to recover.

Building Material, Farm & Garden & Hardware – This channel has its biggest spending lift in the Spring. The shelter in place rules caused many consumers to turn their focus to their needs at home, including house and yard repair and improvement. This has further accelerated the usual Spring lift. Sales are up across the board, including +6.7% YTD.

Sporting Goods, Hobby and Book Stores – Book and Hobby stores which had been closed started to reopen. Sporting Goods stores had generally been open but organized sports were on hold, parks closed, and non-essential travel was discouraged. In May things began to open up and consumers once again sought outdoor recreation. Sales literally doubled from April. The May Sales even beat 2019 by 6%. However, YTD they were still down 10%.

All Miscellaneous Stores – This group is mostly small to medium specialty stores – both chains and independents. While Pet Stores are essential, most other stores in this group are not. The closures hit this group particularly hard. May sales were up 27.3% from April as the reopening began but they are still down 24.3% vs May of 2019. In February they were up $2.6B, +14.3% YTD. In 3 months, this changed to down -$4.3B, -8.3%. That’s quite a negative turnaround.

NonStore Retailers – 90% of the volume of this group comes from Internet/Mail Order/TV businesses. The COVID-19 crisis has only accelerated the ongoing movement to online retail. Compared to 2019, NonStore was up 16.3% in March, 22.5% in April and 25.3% in May. Since April they have been the leader in all sales measurements regardless if it is in $ or % increase. Also, their YTD sales are up 16.6%, exceeding their 12.9% annual increase in 2019. This early year lift bodes well for 2020 as much of their annual increase is usually driven by Christmas Holiday spending, which is still to come.

Note: Almost without exception, online sales by brick ‘n mortar retailers are recorded along with their store sales in their regular channel. Whether they are up or down, their online sales are included in the totals.

Recap – Hopefully, April was the “bottom” in the COVID-19  impact on the American way of life and consumer spending. Although the situation began to improve slightly in May, it still beat out March to register the 2nd biggest year over year monthly retail sales decline in history. Restaurants, Auto and Gas Stations all had big sales increases over April, but they are still struggling. The Relevant Retail segment provided the only true positive as sales were up in all measurements. However, for many segments in this group there is still a long way to go. As the situation evolves, spending will no doubt move back to a more routine pattern – a new normal. No one knows how long that this will take and what long term impact the COVID-19 crisis will have on U.S. consumers’ spending behavior. We will continue to monitor the data and provide you with regular updates as the situation evolves.

 

 

 

 

The Impact of COVID-19 on Small Businesses – May Monthly Update

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Small Businesses are at the core of our nation’s economy and the challenges they face are important to everyone. To better understand the impact of COVID -19 on these businesses, the U.S. Census Bureau began reaching out to small businesses in order to aid decision-makers in serving their urgent needs. For the Survey, the Census Bureau defined a small business as a single location business with employment between 1 and 499 and receipts of at least $1,000.

Consisting of 16 questions, this 5-minute survey reaches close to 1 million businesses split across a 9-week rotation to reduce burden and lessen survey fatigue. The survey is reaching out to small businesses in every area of the U.S. Economy. The first survey was conducted between 4/26/20 and 5/2/20. The most recent results are from the week ending 5/30/20 so we can now track the evolution of the COVID-19 impact across the whole month of May.

The results are first categorized by major, 2 digit NAICS code classification. Slightly more specific data (by 3 digit NAICS code) is now available so we are able to more closely track elements which are relevant to the Pet Industry. Here are the 14 “pet relevant” groups for which we have compiled data:

  • National Avg: Covers All Major Areas with a few Exceptions like Agricultural Production and Religious Organizations
  • Product Related Groups:
    • 31-33: Manufacturers – All manufacturers
      • 311 – Food Manufacturers (Both Human & Animal)
    • 42: Wholesalers/Distributors – Wholesalers/Distributors of any type products
      • 424 – Distributors of Nondurable Goods (Includes food and nondurable supplies)
    • 44-45: Retail Trade – This includes everything from gas stations to Pet Stores (#453910). No restaurants
      • 444 – Building Materials/Hardware/Farm
      • 445 – Food & Beverage Stores
      • 452 – General Merchandise Stores
      • 453 – Miscellaneous Retailers (includes Pet Stores)
      • 454 – Nonstore Retailers
    • Services Related Groups:
      • 54: Professional, Scientific and Technical Services – Legal, Advertising Agencies, etc… and Vet Clinics (#541940)
      • 81: Other Services – Funeral Homes, Barber Shops, Auto Repair, etc … and Pet Care Services (#812910)
        • 812 – Laundry & Personal Care (includes Pet Care Services)

The data from each group has been bundled into 3 charts showing the group’s responses to 8 particularly relevant questions about the impact of COVID-19.

Here are the charts and the questions that will be answered on each:

Chart #1: Impact of Covid-19 on Your Business

  1. Overall, how has this business been affected by the COVID-19 pandemic?

Chart #2: Key Business Elements – Weekly Changes

  1. In the last week, did this business have a change in operating revenues?
  2. In the last week, did this business have disruptions in its supply chain?
  3. In the last week, did this business temporarily close any of its locations for at least one day?
  4. In the last week, did this business have a change in the number of paid employees?

Chart #3: Government Assistance & Your Outlook For The Future

  1. Since 3/13, has this business requested/received financial assistance from Paycheck Protection Program (PPP)?
  2. Since 3/13, has this business received any financial assistance from any Federal Program?
  3. In your opinion, how much time will pass before this business returns to its usual level of operations?

We are not going to review each group in this report. We are going to take a closer look at the National Averages, Miscellaneous Retailers (includes Pet Stores) and Nonstore Retailers. At the conclusion of the report we will make the data for all 14 groups available for you to download. You can then pick the ones that are most relevant to your particular business.

A word of caution: Remember, this data is only for the small businesses in any particular classification. It doesn’t include the big chains, which could be impacted differently because of their size, capabilities or resources.

Let’s get started with the National Averages.

  • The perception of a negative impact remains high, 85+%, but it has become more moderate.
  • Not too many folks are seeing any positives, but the percentage seeing little or no effect has grown to 11.4%.

  • Every measurement on this chart is moving in the right direction. However, in terms of revenue businesses still have a very long way to go.
  • By the end of the month, more areas were reducing “lock downs” so the closures decreased, but still impacted over 1 in every 4 small business.
  • The employment situation also showed significant improvement. The gap between businesses adding and decreasing employees has narrowed.

  • Perhaps the most significant change is in the number of businesses receiving PPP funds. On May 2nd, 51% of businesses who had applied for PPP had received funds. By May 30th, this number had grown to 95%.
  • The other big change is that the projected time for recovery has increased, with 41.2% now saying a return to normal will take 6 months or more. Plus, 1 in every 10 businesses say that they will never return to “normal”.

Now, let’s look at MISCELLANEOUS STORES

  • While Pet Stores were generally deemed “essential”, most stores in this group, like gift shops, art dealers and used furniture stores were not, which explains the high initial negative impact. It did moderate slightly over the month.
  • The numbers are still very small, but the percentage of businesses expecting a positive outcome (5.7%) or little/no effect (7.4%) on their business are both increasing.

  • The change in revenue started in the right direction but plateaued at mid-month. In the last week it appears to be moving back on track.
  • Supply chain problems remain a big factor. While closures are down significantly, they still impact almost 4 in 10 businesses.
  • The number of businesses with a decreasing number of employees has been cut in half. However, it is still twice the number of companies adding employees.

  • The PPP funds really rolled out in May to this group. On May 2nd, only 41% had received any $. By May 30th, that number had grown to 93%. In fact, 78% of all these businesses received some type of federal aid.
  • This group also sees a longer recovery time, with 44.5% saying that it will be 6 months or more until a return to normal. This is actually a little more optimistic than their feelings on May 23rd when a full 62.5% thought that a return to normal would take 6 months or more (46.1%) or actually never happen (16.4%).

Finally, let’s look at NONSTORE RETAILERS

  • Although the percentage dropped sharply in the last week of May, a large majority of businesses still see COVID-19 as a negative impact on their business. 12.1% said that the effect would be positive.

  • The revenue situation is improving rapidly. Almost 1 in 4 businesses saw an increase in revenue, but 42.5% are still reporting declining $ales.
  • Supply chain problems and closures are improving but 23.8% with closures is still high for businesses with no retail outlets.
  • The employment situation totally turned around in May. As of May 30, more companies are adding employees (9.0%) than are losing them (6.9%).

  • The PPP was delivered in May. By 5/30, 96% of the businesses who applied for funds had received payment.
  • Their overall projection for recovery is a little better than average. 6 months or longer still has the largest number (31.8%) but 60% of this group say that there was no impact on their business by COVID-19 or that recovery will occur within 6 months.

As you can see from our examples, while the specifics may vary by business category and the situation is generally improving, COVID-19 has had a broad negative impact across the full spectrum of U.S. Small Businesses. Even small businesses in channels that are showing overall growth during the crisis, like Grocery, Hardware and Nonstore, are having serious problems. The overall national growth in these channels is being driven by the “big guys”, like Kroger, Home Depot and Amazon. The overall projection for a return to normal for small businesses is 6 or more months, which would put it in December 2020 or later.

That concludes our May update, but as we said, more data is available for you. Files with the specific data/charts for all 14 business categories that we identified as relevant to the Pet Industry (including those used in this report) are available for download. Each file is a 1 page word document with 3 COVID-19 impact charts for a specific business category. There is no commentary – just data. Pick the ones that are most relevant for your business and share them with your associates. STAY SAFE!

National Average & Major Business Categories

National Avg Manufacturers Whlsrs/Distribs Retail Trade Science/Tech Other Services

More Defined Supply Chain Categories

Food Mfg Distrib Nondurables

Drilling Down into the Retail Trade

Bldg/Hdwe/Farm Food & Bvg Gen Mdse Strs Misc Stores Nonstore Retailers

Finally, Personal Care Services (includes Pet Care)

Personal Care

 

 

 

 

 

 

 

U.S. PET SUPPLIES SPENDING $17.71B (↓$2.10B): MID-YR 2019 UPDATE

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In our mid-year analysis of Pet Food spending, we saw that the spending plummeted in the 2nd half of 2018 then flattened out at the beginning of 2019. Pet Supplies spending took the exact opposite path. Mid-Year 2019 Pet Supplies spending was $17.71B, down $2.1B (-10.6%). The first half spending drop in 2019 effectively puts spending in this segment back to the level of 2 years ago in Mid-Yr 2017. The following chart should put the recent spending history of this segment into better perspective.

Here are this year’s specifics:

  • Mid Yr 2019: $17.71B; ↓$2.10B (-10.6%) from Mid Yr 2018. The -$2.10B came from:
    • Jul > Dec 2018: ↓$0.01B
    • Jan > Jun 2019: ↓$2.09B

Like Pet Food, Pet Supplies spending has been on a roller coaster ride. However, the driving force is much different. Pet Food is “need” spending and has been powered by a succession of “must have” trends. Pet Supplies spending is largely discretionary, so it has been impacted by 2 primary factors. The first is spending in other major segments. When consumers ramp up their spending in Pet Food, like upgrading to Super Premium, they often cut back on Supplies. However, it can go both ways. When they value shop for Premium Pet Food, they take some of the saved money and spend it on Supplies. The other factor is price. Pet Supplies prices reached their peak in September of 2009. Then they began generally deflating and in March 2018 were down -6.7% from 2009. Although it is not a hard and fast rule, Price inflation in this largely discretionary segment can retard sales, usually by reducing the frequency of purchase. On the other hand, price deflation generally drives Supplies spending up. Innovation can “trump” both of these influencers. If a new “must have” product is created, something that significantly improves the pet parenting experience, then consumers will spend their money. The perfect example of this is the successive waves of new food trends. Unfortunately, we haven’t seen much significant innovation in the Supplies segment recently.

Recent history gives a perfect example of the Supplies roller coaster. In 2014 Supplies prices dropped sharply, while the movement to Super Premium Food was barely getting started – Supplies spending went up $2B. In 2015, consumers spent $5.4B more on Pet Food. At the same time, Pet Supplies prices went up 0.5%. This was a “killer” combination as Supplies spending fell $2.1B. In 2016 consumers value shopped for Food, saving $2.99B. Supplies spending stabilized by mid-year then increased by $1B in the second half when prices fell sharply. Consumers spent some of their “saved” money on Supplies. Supplies prices continued to deflate throughout 2017. Food spending increased $4.61B in 2017 but this came from a limited group, generally older CUs, less focused on Supplies. The result was a $2.74B increase in Supplies spending. This appeared to be somewhat of a break with the overall pattern of trading $ between segments.

In the first half of 2018 Pet Food spending slowed to +$0.25B. Supplies’ prices switched from deflation to inflation but were only up 0.1% versus the first half of 2017. During this period Supplies Spending increased by $1.23B. With new Tariffs scheduled to start in September, prices began to climb in the second half of 2018. They were up 1.7% in the second half and with implementation of the tariffs, grew an additional 1.7% in the first half of 2019. Halfway through 2019 Supplies prices were a full 3.4% higher than they were a year earlier. The impact of the tariffs on the Supplies segment is very clear. Spending became flat in the second half of 2018, then took a nosedive in the 1st half of 2019 – down -$2.1B. In one 6 month period Supplies gave back 40% of the $5B it had gained from July 2016 to June 2018.

Let’s take a closer look at the data, starting with the two most popular demographic measures – age and income. In the graphs that follow we will compare spending for the Mid-year 12 months ending 6/30/19 to the previous period ending 6/30/18. In our graphs we will also include the 2018 yearend $pending. This will also allow you to see the spending changes in the 2nd half of 2018 and the 1st half of 2019.

The first graph is for Income, which has been shown to be the single most important factor in increased Pet Spending, especially in Pet Supplies and both of the Service segments.

Here’s how you get the change for each half using the $50>70K group as an example:

Mid-yr Total Spending Change: $2.43B – $2.47B = Down $0.04B (Note: green outline = increase; red outline = decrease)

  • 2nd half of 2018: Subtract Mid-18 ($2.47B) from Total 2018 ($2.61B) = Spending was up $0.14B in 2nd half of 2018.
  • 1st half of 2019: Subtract Total 2018 ($2.61B) from Mid-19 ($2.43) = Spending was down $0.18B in 1st half of 2019.

  • In an exact reversal of the Mid-yr 2018 pattern, the decrease in Supplies Spending was widespread across income groups. The only yearly increase came from the $70>100K group. They were up in both halves. They did have a $2B decrease in Food spending during this time so they may have spent a small amount of those $ on Supplies.
  • In another reversal, the biggest decrease came from the over $150K group. Their $1.02B drop accounted for 49% of the segment’s total decrease while they only have 13.1% of the CU’s. They gave back most of last year’s $1.5B gain but the drop was mitigated because this group is gaining members faster than any other income segment, +11.4%.
  • The pattern of the under $50K groups matches the $150K+ segment with drops in both halves. Their combined $1.03B drop also accounted for 49% of the total decrease. However, they account for 46.0% of all CUs and their numbers are shrinking, down 1.6 million, -2.7% in the last year.
  • The upper and lower middle income groups, $50>70K and $100>150K, had their own pattern with a lift in the second half of 2018 and a drop at the start of 2019. The $ changes were larger for the higher income group.
  • Did tariffs have an impact? Income groups totaling 113M CU’s (86%) spent less on Supplies in the 1st half of 2019.

Now let’s look at Pet Supplies spending by Age Group.

  • Every Age group had an overall annual decrease and only the under 25 group had an increase in the 1st half of 2019.
  • The 25>44 year olds were the only ones to spend more in the second half of 2018, +$0.32B. However, they gave it all back and more, down -$0.94B in the 1st half of 2019.
  • The two smallest spending groups, <25 and 75+ had only small decreases, under -5%. However, the Supplies spending in each of the other groups fell at least -9%. Obviously, the inflation from tariffs affected all ages.

Now let’s look at what is happening in Supplies spending at the start of 2019 across the whole range of demographics. In our final chart we will list the biggest $ moves, up and down by individual segments in 11 demographic categories. Remember, the drop in the 1st half of 2019 was -$2.09B, a big change from the -$0.01B decrease in the 2nd half of 2018.

  • The first thing that you notice is that the biggest decreases are radically larger than the biggest increases.
  • The downturn is also very widespread as in 5 of the 11 categories all segments decreased Supplies Spending. This is a radical turnaround from last year when 4 categories had increased supplies spending in all segments. The “flip” from last year is even more evident in the details. In the 1st half of 2018, 89% of all segments spent more on Supplies. In 2019, only 8 segments spent more. That means 90% spent less – a total reversal.
  • The list of losers is a veritable roster of the usual Supplies spending winners – Gen X, White, not Hispanic, Homeowners w/Mtge, $150K+, BA/BS, Suburban, 2 Earners… The answer is that the groups who buy the most Supplies were the groups most impacted by the price increases.
  • There are a couple of minor bright spots. Like the Food segment, Singles were the unexpected winners in 3 categories. This reflects their increasing focus on their pets. It also can be seen beneath the surface in the <25 and 75+ age groups. They had by far the smallest decreases and are also the most likely to be in a 1 person CU.
  • The other positive is that both African Americans and Hispanics increased their spending overall and in both halves.

The 24 month Spending winning streak for Supplies which began in the second half of 2016 came to an end in the second half of 2018. During that time spending on Pet Supplies increased $4.97B (+33.5%). It was also widespread across America. Of 82 separate demographic segments, only 1 spent less on Supplies in that period – the Greatest Generation. This 91+ year old group has now become too small to be accurately measured.

What are the market conditions that affect Supplies spending? We have to first note that the world changed for Supplies because of the great recession. Prices have generally deflated since then and spending in the segment became more sensitive to changes in price. Prices go up…spending drops, usually due to reduced purchase frequency. Prices go down… spending turns up. This situation did not exist prior to the recession.

The other factor is spending in other segments, especially Food. Pet spending comes out of “one bucket”. A big increase in one segment can result in a cut back in others and big savings can generate more spending. The recent upgrade to Super Premium Food was such a big $ commitment that it magnified this effect.

In 2018, something new was added – outside influence. The FDA warning on grain free dog food had an immediate and negative impact on the Food segment. For Supplies, it was the implementation of added tariffs. Although the tariffs were not official until September, prices in the Supplies segment began to turn up in the Spring. In the 2nd half they were 1.9% above 2017 and kept increasing. The 1st half 2019 CPI was 3.4% above the 1st half of 2018. The result was that Supplies spending flattened out then plummeted in the first half of 2019, down -$2.1B. Inflation has now come to the forefront in Supplies Spending. It continued to increase. By the 2nd half of 2019 prices had increased 4.0% in 18 months. Unless consumers adjust their behavior, this does not bode well for the 2nd half of 2019. We’ll get that data in September.

 

 

 

 

U.S. Census Bureau Small Business Pulse Survey – Measuring the Impact of COVID-19

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Small Businesses are at the core of our nation’s economy and the challenges they face are important to everyone. To better understand the impact of COVID -19 on these businesses, the U.S. Census Bureau is reaching out to small businesses in order to aid decision-makers in serving their urgent needs. For the Survey, the Census Bureau defines a small business as a single location business with employment between 1 and 499 and receipts of at least $1,000.

Consisting of 16 questions, this 5-minute survey reaches close to 1 million businesses split across a 9-week rotation to reduce burden and lessen survey fatigue. The survey reaches out to small businesses in every area of the U.S. Economy. The first survey was conducted between 4/26/20 and 5/2/20 and results were released on 5/14. This report includes the data from that initial survey as well as the data from the weeks ending 5/9 and 5/16. It will be presented in charts that will allow you to track the evolution of the responses as we progress through this crisis.

The results are categorized by major NAICS code classification. This report will show the National Average plus results from 5 big groups which are relevant to the pet industry:

  • National Avg: Covers All Major Areas with a few Exceptions like Agricultural Production and Religious Organizations
  • Product Related Groups:
    • 31-33: Manufacturers – All manufacturers
    • 42: Wholesalers/Distributors – Wholesalers/Distributors of any type products
    • 44-45: Retail Trade – This includes everything from gas stations to Pet Stores (#453910). No restaurants
  • Services Related Groups:
    • 54: Professional, Scientific and Technical Services – Legal, Advertising Agencies, etc… and Vet Clinics (#541940)
    • 81: Other Services – Funeral Homes, Barber Shops, Auto Repair, etc … and Pet Care Services (#812910)

Each group will have a separate section in the report which will have 3 charts showing the group’s responses to some particularly relevant questions about the impact of COVID-19.

Here are the charts and the questions that will be answered on each:

Chart #1: Impact of Covid-19 on Your Business

  1. Overall, how has this business been affected by the COVID-19 pandemic?

Chart #2: Key Business Elements – Weekly Changes

  1. In the last week, did this business have a change in operating revenues?
  2. In the last week, did this business have disruptions in its supply chain?
  3. In the last week, did this business temporarily close any of its locations for at least one day?
  4. In the last week, did this business have a change in the number of paid employees?

Chart #3: Government Assistance & Your Outlook For The Future

  1. Since 3/13, has this business requested/received financial assistance from Paycheck Protection Program (PPP)?
  2. Since 3/13, has this business received any financial assistance from any Federal Program?
  3. In your opinion, how much time will pass before this business returns to its usual level of operations?

Advance Observations (Spoiler Alert)

  1. The negative impact is widespread and deep across the U.S. Economy.
  2. Business measurements, like revenue, closures and employment are generally moving in the right direction, but… slowly.
  3. As we come fully to grip with the crisis, it becomes more apparent that recovery will take quite some time.

Now Let’s Look at the Details

We will start with the overall National Small Business Response Averages.

Then, we will move to the Product Related Groups and Wrap it up with Services.

At the conclusion there will be a link to download a PDF copy of the report!

NATIONAL AVERAGE

  • Total Negative is down slightly. The biggest drop is in large negative as both the moderate negative and little/no effect groups move up.

  • All measurements are moving steadily in the right directions. Although it is at an extremely low level, the group with an increase in revenue basically doubled in 2 weeks. Supply chain problems remain an issue and over 1/3 of the businesses still are reporting closures but this is down 20% from May 2nd. Employment is definitely slowly improving.

  • ¾ of all small businesses requested help from the PPP. It is finally coming through as 89% of those that submitted a request have received funds as of 5/16. With help from numerous Government agencies, like the Small Business Association, 72% of the Small Businesses have received financial assistance.
  • In terms of outlook the biggest decrease came in those expecting to return to normal in 2 to 3 months while the biggest increase came in the over 6 months group.
  • Things are turning in the right direction in basically every measurement, but the movement is slow. As businesses became involved in the reality of the situation, it is becoming increasingly obvious that a return to normal will take some time.

MANUFACTURERS

  • Total negative is slightly below the national average, but their evolving pattern is similar – a drop in large negative with increases in moderate negative and little/no effect. However, their Moderate negative share now ranks #1.

  • Their Revenue is moving in the right direction but the gain in the number with an increase was miniscule. While their Supply chain issues are significant, they have the lowest percentage of closures for any group. The employee count is also coming together but like Revenue, the gain in the number adding personnel was small.

  • 4 out 5 Manufacturers have requested PPP assistance and as of 5/16, 87% of those who applied had received funds. 77.8% of Small Manufacturers have received some Federal Financial assistance. This is the highest % of the 5 groups.
  • Although there was a slight increase in those stating that their was little or no impact on their business, the biggest movement in the projections is to over 6 months, which grew from 32.4% to 38%. The 2 to 6 month group fell from 51.9% to 45.1%.
  • The manufacturing segment is ultimately dependent upon retail so slowed business there will ultimately work its way up the distribution chain. This group is generally moving in the right directions but changes, especially increases tend to happen at a slower pace.

WHOLESALERS/DISTRIBUTORS

  • The overall negative impact has remained stable and very high, ranked 2nd of all 5 groups. However, it is moderating slightly. Little impact is up slightly. Overall, positivity is down slightly but is still the 2nd highest, behind Retailers.

  • Revenue is moving in the right direction. However, the percentage with decreased $ is the highest of all groups. Supply Chain problems are over 50% and 2nd highest, while Closures have the 2nd lowest rate. Employment remains very stable and moving towards a return to normal.

  • 70% have applied for PPP assistance and 87% have received funds. However, this group has the highest percentage of businesses receiving no Federal financial assistance of any kind – 34%.
  • Their outlook is also moving towards a longer recovery time. 38.6% of Distributors now believe that it will take over 6 months to return to normal, the highest percentage of any group. The size of the groups who saw little or no impact on their business and those who think they will never return to normal has stayed about equal, unlike any other industry segment.
  • The recovery of Distributors is dependent upon the recovery of their retail customers. The faster the Retail Business returns, the faster the distributors gain $. The key is that they need to be ready and able to handle it.

THE RETAIL TRADE

  • The overall negativity is the lowest of any group and is increasingly seen as moderate. However, the biggest reason the number is low is that 8.7% of Retailers are seeing a positive impact. Online retailers are one example.

  • While the situation is still dire, Retailers are having the best results in terms revenue flow, with 22.2% having increased $. They are doing this despite having a very high rate of Supply Chain problems and Closures, although Closures are down 27% in 2 weeks. Employment is also improving, and they lead the way with 9.7% adding workers.

  • Over ¾ of Retailers have applied for PPP assistance. By 5/16, 87% of those that applied had received funds. In fact, 74.5% of all Small Business retailers have received some type of financial assistance from the federal government.
  • On May 2, 53% of retailers said things would be back to normal in 2 to 6 months. In 2 weeks that number has fallen to 46% and the number that think that recovery will take more than 6 months has risen to almost 35%.
  • Next to the Health Care Segment, the Retail Segment is where we see the biggest visual impact of the COVID-19 pandemic. With stay at home and closures, we are seeing a huge movement to online shopping. However, that is not enough. This segment, without restaurants accounted for $5.4 trillion dollars in consumer sales in 2019. That’s a lot of ground to make up. Plus, the fate of the manufacturing and distributing segments is directly tied to Retail.

PROFESSIONAL, SCIENTIFIC and TECHNICAL SERVICES (INCLUDES VETERINARY CLINICS)

  • Their initial perceived negative impact of COVID-19 was high at 87.5%, but it was still the lowest of the 5 groups. Also, many more, over 50%, believed the impact to be moderate rather than large. They also have the highest percentage saying there will be little or no impact from COVID-19 on their business.

  • In terms of Revenue change they have the most consistency of any group – the highest percentage of no change, 32.9% – the lowest percentage with an increase and the second lowest percentage with a decrease. They also have faced the least amount of Supply problems as well as the lowest percentage of closures of any group dealing directly with consumers. Employment shows the highest percentage of no change while the increases/decreases are headed in the right directions.

  • 71% applied for PPP and by 5/16, 91% had received their funds. In regard to overall Government aid, 69% have received Federal financial assistance. Only Distributors, at 64% had a lower number.
  • Despite their stability in business elements and the fact that 1 in 9 say that COVID-19 has had little or no impact on their business, the outlook on recovery time for most has worsened. The group estimating a 2 to 6 month return to normalcy has fallen from 53% to 48%, under half. Over 1/3 now think it will take 6+ months to recover.

OTHER SERVICES (INCLUDES PET CARE SERVICES)

  • At 92%, COVID-19 had the biggest negative impact on this group. It was also very severe. Although it has moderated slightly, the ratio of businesses with Large Negative over those with Moderate Negative remains at nearly 2 to 1.

  • 80% of businesses reported a change in revenue in the week ending 5/16. The negative number was 65%. This was the highest among those interacting with consumers, but down significantly from the 78% peak. Those reporting increased $ is up to 14.9%, 2nd place behind Retailers. Supply Chain problems remain high and they have the highest percentage of closures. In terms of Employment, they are moving in the right direction – slowly. They are below the national average in additions, lowest of the group of 5 in “no change” and highest in the group for decreases.

  • 80% have applied for PPP and as of 5/16, 86% of received funds. 74% of the group have received some Federal aid $.
  • 32% of this group originally expected a return to normal in 3 month or less. The size of that optimistic group has dialed back to 26%. The mid-range 4 to 6 month group has remained steady at 27%. However, the group that projects 6+ months to recovery now represents 1 in every 3 businesses. We should also note that 1 in 11 businesses say they will never return to normal, the highest number in our group of five.

That wraps it up for the 5/16 update. If you would like a PDF copy of the report, click the button below.

Click to download PDF of report

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail Channel Monthly $ Update – March Final & April Advance

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Time for our monthly update on U.S. retail sales by channel. The current COVID-19 crisis has caused turmoil in the Retail Marketplace. Consumer spending behavior has changed and continues to evolve. In this report we will track the changes and migration between channels. We will do that with data from two reports provided by the U.S. Census Bureau.

The Reports are the Monthly Retail Sales Report and the Advance Retail Sales Report. Both are derived from sales data gathered from retailers across the U.S. and are published monthly at the same time. The Advance Report has a smaller sample size so it can be published quickly – approximately 2 weeks after month end. The Monthly Final Report includes data from all respondents, so it takes longer to compile the data – about 6 weeks. Although the sample size for the Advance report is smaller, the results over the years have proven it to be statistically accurate with the final monthly reports. The biggest difference is that the full sample in the Final report allows us to “drill” a little deeper into the retail channels.

This means to get the full picture in our monthly channel update we need to look at the latest release of both reports. We will begin with the Final Retail Report from March and then move to the Advance Retail Report for April. This will also allow us to better track the consumers’ evolving spending behavior in terms of channel migration.

Both reports include the following:

  • Total Retail, Restaurants, Auto, Gas Stations and Relevant Retail (removing Restaurants, Auto and Gas)
  • Individual Channel Data – This will be more detailed in the “Final” reports and we fill focus on Pet Relevant Channels

The information will be presented in detailed charts to facilitate visual comparison between groups/channels of:

  • Current Month change – % & $ vs previous month
  • Current Month change – % & $ vs same month in 2019
  • Current YTD change – % & $ vs 2019
  • Monthly and Year To Date $ will also be shown for each group/channel

We’ll start with the March Final report. This was the first month of the crisis. The impact is very visible. First, we will look at some major retail groups. (Note: The Data in all graphs is Actual, Not Seasonally Adjusted)

It looks just like the Advance report projected a month ago. All 3 of the groups that are down in YTD $ were up at least 8% through February. March is the start of the traditional Spring lift, but not in 2020. If you can’t go out, you don’t think about a new car. It also doesn’t matter how cheap gas is if you aren’t driving.

The “Relevant” retail is the only positive and we know that it is being driven up by binge/panic buying of necessities. Food is the biggest driver. If you can’t go out to eat, you cook at home.

Now, let’s see how some Key Pet Relevant channels were doing in March.

Observations – We’ll look at them in groups

  • Building Material Stores – This group typically has their biggest annual lift in Spring. It appears that this is unchanged. In fact, there is a significant increase over last year. Farm Stores are doing especially well with double digit increases over March 2019 and YTD. Although Sporting Goods stores are not included in this group, they have a similar Spring lift pattern. March Sales were up from February, but still down 8% vs 2019.
  • Food & Drug – This is where we see the greatest positive impact from “Stay at Home”. Supermarket sales are skyrocketing – +30% vs 2019. Drug stores are also experiencing a big lift as consumers stock up on necessities.
  • General Merchandise Stores – It’s about Food. Sales in $ Stores, Clubs and SuperCenters are all up 12+% vs 2019. Most traditional Department stores are closed and the shopping in many Discount Department stores is often limited to essentials. This has helped depress sales by -10% vs March 2019.
  • Office, Gift and Souvenir Stores – Most of these stores are deemed non-essential. You see the result.
  • Internet/Mail Order – “Stay at home” has further accelerated this channel’s growth. This will likely continue as the crisis has introduced many new consumers to online shopping.
  • A/O Miscellaneous – This is a group of small to midsized specialty retailers – chains and independents. It includes Florists, Art Stores and Pet Stores. Pet Stores generally account for 22 to 24% of this group’s total sales. The group was up 21% YTD in February. Although that pace has slowed slightly to +17%. Consumers are still shopping for essentials, like Pet Products in these outlets.

March was certainly a terrible month for retail spending, the biggest Total Retail $ drop in history. Binge/panic buying buoyed up the Relevant Retail sector but that is temporary and non-essential business closures became widespread by the end of the month.  We’ll see what a full month of shuttered doors brings. Here are the Advance numbers for April.

March was terrible, with the biggest spending drop in history. However, it was nothing compared to April. It is obvious that a full month of stay at home and business closing orders had a huge impact across the Retail Marketplace.

Total Retail – Total Retail spending fell $108B, -21.2%. This unprecedented drop is literally 3 times greater than the record decrease set in March. Remember, 2020 started off strong. Spending through February was up $60B, +6.6% versus 2019. Then came the COVID-19 crisis and now it is down -$82B – a $142B turnaround in just 2 months.

Restaurants – Spending was up $9B through February, +8.1%. In March Social Distancing began and many restaurants closed. Spending fell $18B, turning a $9B increase into a $9B decrease. April brought a full month of the restrictions and spending plummeted, down $31B, -49% vs 2019. Many restaurants are offering delivery and curbside pickup, but this can’t replace eating in restaurants. This group is now down $40B YTD.

Automobile & Gas Stations – If you can’t go out, except for necessities, then your car becomes less of a focus in your life. Buying a car is definitely less of a priority. Auto Dealers, both new and used, are trying to combat this with some fantastic deals and a lot of advertising. It doesn’t seem to be working. In terms of Gas Stations, prices are down sharply but as we have said, it doesn’t really matter much how cheap gas is if you’re not driving.

Relevant Retail – Less Auto, Gas and Restaurants – Many non-essential businesses were forced to shutter their doors in March. However, there was also a rash of binge/panic buying as consumers literally battled over toilet paper and sanitary wipes. The closure of restaurants, schools, and businesses, along with many people now working from home caused a big lift in home cooking. This drove up spending at Supermarkets, SuperCenters and Warehouse Clubs. These 2 factors overcame the impact of closures and Relevant Retail Spending in March was up 6.3% and YTD 5.9%, +$49B. Then came April, with a full month of closures. Plus, while grocery spending continued to be strong, the bingeing and hoarding slowed markedly. Spending dropped $43B, -13.4% from March and cut the YTD growth in half. However, the YTD, +2.1% for Relevant Retail is the only positive number in any measurement for any of the big groups on the entire graph.

Now let’s look at what is happening in the individual retail channels across America. In April, spending turned down in Relevant Retail. Let’s see if we can find any positives. These groups are less defined than in the Final Monthly reports and we will look all across the whole market, not just pet relevant outlets.

A full month of stay at home resulted in few “winners” and the impact on the “losers” is even more pronounced.

 Observations

You quickly see that the negative impact from a full month of stay at home, closures and reduced discretionary spending was widespread. Only 3 groups had positive numbers for April:

  • Nonstore Retailers – Stay at home has moved even more consumers to online shopping.
  • Grocery Stores – Stay at home means “eat at home”. Food sales continue to surge.
  • Bldg Materials/Garden/Farm – A near normal Spring lift as “at home” consumers also focus “on their home”.

The panic/binge buying of March ended in April as spending fell in all but 2 groups – Nonstore and Bldg Materials.

Regarding the Individual Large Channels

General Merchandise Stores – April also wiped out the overall YTD gains of GM stores. Regular Department stores are closed, and discount department stores continued their downward sales trend. Club/SuperCtr/$ stores had provided the only positive note. In April consumers dialed back their panic buying and Spending on discretionary items was also down significantly. This combination of factors drove sales down 6.7%, -$3.1B vs April 2019 in this largest GM group.

Food and Beverage, plus Health & Personal Care Stores – The initial March wave of binge/panic buying in March ended in April. The Grocery segment is still being driven by increased Food sales, up 14.5%, +$8B. However, sales in the Health, Personal Care group turned down, essentially wiping out the previous YTD gains. While Drug Stores are essential, many Personal Care stores are shuttered.

Clothing and Accessories; Electronic & Appliances; Home Furnishings – Some Electronic stores are deemed essential but most of the other stores in these groups are not. All saw a huge 60+% drop in sales but Clothing stores took the biggest hit, down 89.3%, -$19.1B from 2019. Even before the crisis, their online sales were growing, but not enough.

Building Material, Farm & Garden & Hardware – This channel has its biggest spending lift in the Spring. With many consumers sheltering in place, their focus has turned to their needs at home, including house and yard repair and improvement. Their spending pattern is the closest to “normal” of any brick ‘n mortar group. The Spring lift is apparently still “on” as their sales are up 7% over March, 2.6% over April 2019 and 5.6% YTD.

Sporting Goods, Hobby and Book Stores – Many Book and Hobby stores have been classified as non-essential, but most Sporting Goods stores are open. They also usually have a big spending lift in the Spring. However, with organized sports on hold, many parks closed, and non-essential travel discouraged, the need for products in the sporting goods arena is greatly diminished. This group was down 24% in March, but the decline increased in April – Down $3B, -48.7% vs 2019.

All Miscellaneous Stores – This group is mostly small to medium specialty stores – both chains and independents. While Pet Stores are essential, most other stores in this group are not. In March, YTD sales for this group were up solely because of a spectacular early year performance by the All Other Subgroup, which includes Pet Stores. In April this was not enough to overcome a full month of closures as Sales for All Miscellaneous Stores were down across the board.

NonStore Retailers – 90% of the volume of this group comes from Internet/Mail Order/TV businesses. In April, the ongoing movement to online accelerated. They were up 12.1% in March. Their April increase was 21.2%, +$13.1B. They took over the lead from Grocery Stores in all sales measurements regardless if it is in $ or % increase. Two things are significant. Unlike many other channels that had a big lift in March, their $ sales didn’t fall off in April. They were 6.7% higher. Also, their YTD sales are up 13.8%, exceeding their 12.9% annual increase in 2019. This early year lift bodes well for 2020 as much of their annual lift is usually driven by Christmas Holiday spending, which is still to come.

Note: Almost without exception, online sales by brick ‘n mortar retailers are recorded along with their store sales in their regular channel. Whether they are up or down, their online sales are included in the totals.

Recap – April clearly shows the huge fundamental impact that the COVID-19 pandemic has had on the American way of life and consumer spending. The impact is also evolving as we saw the panic buying in March end in April. As the situation continues, spending will no doubt move back to a more routine pattern – a new normal. No one knows how long the current situation will last and what long term impact it will have on U.S. consumers’ spending behavior. We will continue to monitor the data and provide you with regular updates as the situation evolves.

A Final Note From the Census Bureau: Due to COVID-19 many businesses are operating on a limited capacity or have ceased operations completely. The Census Bureau has monitored response and data quality and determined estimates in the Advance Retail Report for April 2020 and Monthly Retail Report for March 2020 both meet publication standards.

Retail Channel Monthly $ Update – February Final & March Advance

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The current health crisis, with its stay at home restrictions, has resulted in many business closures and generally disrupted the U.S. Retail Marketplace. As consumer spending behavior evolves, we will regularly track the changes and migration between channels. We will do this with data provided by the U.S. Census Bureau.

The Census Bureau constantly gathers sales data from retailers across the U.S. and publishes the results every month. Two reports are released approximately mid-month. They are the Advance Retail Sales report and the Monthly Retail Sales report. The Retail Sales Report is more detailed and includes data from all respondents, but it is published about 6 weeks after month end. The Advance Report is released at the same time and gives a quick look at the most recent month. The sample size for the advance report is smaller so it doesn’t drill as deep into the channels, but the results have proven to be statistically accurate with the final monthly reports.

We will publish monthly updates covering both reports. They will include:

  • Total Retail, Restaurants, Auto, Gas Stations and Relevant Retail (removing Restaurants, Auto and Gas)
  • Individual Channel Data – This will be more detailed in the “Final” reports and we fill focus on Pet Relevant Channels

The information will be presented in detailed charts to facilitate visual comparison between groups/channels of:

  • Current Month change – % & $ vs previous month
  • Current Month change – % & $ vs same month in 2019
  • Current YTD change – % & $ vs 2019
  • Monthly and Year To Date $ will also be shown for each group/channel

Let’s get started with February. This data is from the Final Report and will show us the status of the retail market before the crisis. First, we will take a look at some major retail groups. (Note: All Data is Actual, Not Seasonally Adjusted)

February traditionally has the lowest retail spending of any month. We are just coming off of the holiday season, including Christmas closeout buying in January but it is still mid-winter, so the Spring spending lift has not begun.

As you can see, February spending went well with all of these groups having a strong performance vs 2019. The Year to Date numbers were also very positive. The relevant retail group (less Auto, Gas & Restaurants), which most impacts the Pet Industry, was up 5.7% YTD. This pace was significantly higher than 2019’s 3.7% annual increase.

Everything was looking good. Let’s see how some Key Pet Relevant channels were doing.

Observations – We’ll look at them in groups

  • Building Material Stores – This group typically has their biggest annual lift in Spring. It appears that they are getting an early start with a significant increase over last year. Farm Stores even had an increase over January. Although Sporting Goods stores are not included in this group, they have a similar Spring lift pattern. They are also off to a strong start after being down 1.6% in 2019.
  • Food & Drug – These stores tend to have more balanced monthly spending with less pronounced lifts. Supermarkets had a strong monthly lift vs 2019 which may reflect an early start on anticipated necessity buying.
  • General Merchandise Stores – From $ Stores to Warehouse Clubs. All had a similar pattern of increases. Once again, this undoubtedly reflects early stocking up on necessities in anticipation of possible future shortages.
  • Office, Gift and Souvenir Stores – They have the expected pattern. Sales fading after the holidays, with a more normal 3.6% increase for the month.
  • Internet/Mail Order – Their pattern is also “usual” as this segment continues strong growth.
  • A/O Miscellaneous – This is a group of small to midsized specialty retailers – chains and independents. It includes Florists, Art Stores and Pet Stores. Pet Stores generally account for 22 to 24% of this group’s total sales. A strong January was followed with an even stronger February, + 24%. This was a continuation of the 23% annual increase for this group in 2019. Pet Stores were surely a significant contributor to the big numbers.

February was certainly a strong month for retail spending. If we were not in the current health & business crisis, the numbers would bode well for a record spending year in 2020. However, we are definitely in an unprecedented situation. Let’s see the advance numbers for March.

First, the big spending groups.

This is certainly a big change from February.

Total Retail – Overall retail spending fell $36B, -7.0%. This is the largest one month year over year decrease since they began doing the survey in 1951. Sales were still up from February which gives us an indication of just how big the March lift is in a normal year.

It is readily apparent where the stay at home and business closing orders were having the maximum impact.

Restaurants – Spending for the month was down 25%, $16.4B from 2019. Remember this segment was up $10B, 8.8% YTD in February. One month turned it completely around. Obviously, delivery and pick up can’t make up the difference from the widespread ban on eating in restaurants.

Automobile & Gas Stations – Obviously, if you can’t go out, except for necessities, then your car becomes less of a focus in your life. Buying a car is less of a priority and it doesn’t matter much how cheap gas is if you’re not driving.

Relevant Retail – Less Auto, Gas and Restaurants – Although many non-essential businesses were forced to shutter their doors in March, overall, this segment showed strong growth in the month. There was a double digit increase in spending over February and sales vs March 2019 and YTD 2019 were also up sharply. Building upon the strong February lift, this group is up 5.3% for year to date spending over 2019. That is 43% greater than their 3.7% annual increase in 2019. Undoubtedly, much of the lift was due to binge spending on necessities, from hand sanitizer and cleaning products to toilet paper. However, the closure of restaurants, schools, and businesses, along with many people now working from home caused a lift in home cooking. This necessitated increased spending at Supermarkets, SuperCenters and Warehouse Clubs. This should continue but the binge shopping will fade as routines become more stabilized.

Now let’s look at what is happening in the individual retail channels across America. Spending is up in Relevant Retail. Let’s see which groups are winning and losing. These groups are less defined than in the Final Monthly reports and we will look all across the market, not just pet relevant outlets.

The positive or negative impact of the COVID-19 crisis is readily apparent.

Observations

Sales are either up or down, across the board – vs last month, last year or year to date, with 1 exception – Miscellaneous Stores. This group still has a YTD increase vs 2019 due to strong early year performance by the All/Other Misc. subgroup.

While the plus or minus rule is generally true, the reasons behind it are often somewhat cloudy. In most states businesses were deemed essential or non-essential, which dictated if and how that they can remain open. Food and drug stores are obviously essential everywhere, but many other groups fall into a grey area. Also, some general merchandise stores were allowed to stay open, but could only sell essential products. Let’s take a brief look at the results. When possible, will bundle them into larger groups.

General Merchandise Stores – Overall, their increase vs last year is slightly above normal at 5.7%, +$3.3B. SuperCenters, Clubs and $ stores all provide necessities and are showing a strong 12.7% increase. However, in many areas they are prevented from selling non-essential products. Department Stores are a mixed bag. The Discount Stores are open at least for necessities but the traditional Department Stores are closed, which drove a big decrease in spending.

Food and Beverage, plus Health & Personal Care Stores – Grocery stores are obviously essential and driven by the initial wave of binge, necessity spending. Their 27%, $15.5B increase over 2019 is the largest of any channel. Liquor stores are also essential, and they are showing plus numbers too. While Drug Stores are essential, many Personal Care stores are shuttered. The Health, Personal Care increase is higher than usual, but the lowest of any of any positive performing group.

Clothing and Accessories; Electronic & Appliances; Home Furnishings – Electronic stores are generally deemed essential but most of the other stores in these groups are not. Clothing stores took the biggest hit, down 52%, -$11.5B from 2019. We should note that even before the pandemic, consumers bought 30% of their clothing online.

Building Material, Farm & Garden & Hardware – This channel has its biggest spending lift in the Spring. With many consumers sheltering in place, their focus has turned to their needs at home. One of these is obviously house and yard repair and improvement. Their March sales are up 10.1%, +$3.5B over 2019.

Sporting Goods, Hobby and Book Stores – While many Book and Hobby stores have been classified as non-essential, most Sporting Goods stores are open. They also usually have a big spending lift in the Spring. However, with organized sports on hold, many parks closed, and non-essential travel discouraged, the need for products in the sporting goods arena is greatly diminished. Together, this group is down 24% versus March 2019.

All Miscellaneous Stores – This group is mostly small to medium specialty stores – both chains and independents. While Pet Stores are essential, most other stores in this group are not. The only reason that their YTD sales are up is because of a spectacular early year performance by the All Other Subgroup, which includes Pet Stores.

NonStore Retailers – 90% of the volume of this group comes from Internet/Mail Order/TV businesses. This channel is up 12.1%, +$7.3B in March. This puts them second only to Grocery in terms of the size of their March increase. This is no real surprise as spending has increasingly moved online in recent years. In fact, the 12.1% increase is actually smaller than their 12.9% annual increase in 2019. However, it is unusual, coming this early in the year, as much of the annual lift is usually driven by Christmas Holiday spending.

Note: Almost without exception, online sales by brick ‘n mortar retailers are recorded along with their store sales in their regular channel. Whether they are up or down, their online sales are included in the totals.

Recap – The COVID-19 pandemic has had a fundamental impact on the American way of life and consumer spending. When you look at the winners and losers you see a common theme. The winners are focused on home and necessities. The losers are truly placed in the discretionary category, at least for now.

Much of the initial lift was undoubtedly caused by panic buying, out of fear. As the situation continues, spending will no doubt move back to a more routine pattern. No one knows how long this will last and what long term impact it will have on U.S. consumers’ spending behavior. We will continue to monitor the data and provide you with regular updates as the situation evolves.

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U.S. Retail Trade – 2019 $ales Update by Channel – Internet/Mail Order Wins Gold!

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The Total U.S. Retail Market in 2019 reached $6.2 Trillion dollars – up $214B (+3.6%). This is less than last year’s (+4.9%). For this report, we will focus on the “Relevant Retail” Total – removing Restaurants, Auto and Gas Stations from the data. This segment totals $3.7 Trillion. Driven by the Internet/Mail Order Segment, Non-Store Retailers moved to the top of the chart. 2019 will forever be seen as a major waypoint in the U.S. Retail Marketplace.

How are specific Retail Channels performing? We’ll start with a market overview and then work our way down.

(Base Data is from the U.S. Census Bureau Retail Trade Report)

Remember: This data is very relevant to the Pet Industry. According to the last Economic Census:

  1. Retailers other than Pet Stores generated 66.9% of all the Pet Products revenue in the U.S.
  2. Pet Products, on average, generated 1.94% of the total revenue of all non-pet stores that chose to stock them.

  • Restaurants (Food Service) – 12.4% of Total Retail – Up $33B, +4.5%, down significantly from last year’s (+6.4%).
  • Automobile Sales – 20.1% of the Total – Revenue grew $48B, +3.9%. A turnaround from recent slowing growth.
  • Gas Stations – 8.2% of the Total – Up $2B, +0.4% from 2018. In 2019 Gas prices stabilized and growth flattened out after 2 years of strong inflation had driven sales up.
  • Retail, Less Food, Auto and Gas – Up $132B, +3.7% to $3.7 Trillion, down from last year’s +4.3%, but this segment did outperform the total market for the first time since 2016. This segment is 59.3% of the Total U.S. Retail market.

To put this year into perspective, let’s look at the overall performance over the last 5 years.

The growth rate of the U.S. retail market increased each year until 2019. Each segment contributes but has a different pattern. Restaurants have the highest overall growth rate, but it has generally slowed since 2015, especially in 2019. The Automobile segment rate also peaked in 2015 and slowed every year until 2019, when they were the only segment to beat their 2018 rate. Gas Stations are the smallest segment but also the most volatile. Double digit deflation drove sales down in 2015-2016. Then double digit inflation drove sales up in 2017-2018. In 2019 prices stabilized and so did sales. Our “Relevant Retail” Segment has been the most consistent, at or near 4% growth each year. The growth rate fell in 2019 but it exceeded the growth rate of the total market for the first time since 2016. The 2019 Relevant Retail growth rate will serve as a benchmark as we review the performance of the individual channels. Above 3.7%, a channel is gaining market share. Below 3.7%, they are losing ground.

Now, we’ll slice up the U.S. “Relevant Retail” Channel “Pie”

These are large slices of the U.S. Relevant Retail pie. If you look closely you will see a troubling situation. 1 division maintained its share but 7 lost ground. Only 1 division, Non-Store retailers increased their share of the total retail market…a lot. They moved up from 3rd to 1st, edging out Food & Beverage by 0.001% ($28B) – a virtual tie for #1. Three divisions – General Merchandise Stores, Food and Beverage and Non-Store account for 61.3% of the total. This is up slightly from 60.2% in 2018. The increase is all due to Non-Store Retailers as the other two segments continue to lose market share. All three are very important to the Pet Industry. Based upon the last U.S. Economic Census, these three major divisions produced 59.7% of total Pet Products sales. Consumers spend a lot of money in Pet Specialty Stores – 33.1% of their Pet Products $. However, they spend over 80% more in these 3 major retail channels. Pet products are “on the list” wherever the consumer shops.

Because they are so huge, major Divisions of the market generally don’t show much movement in market share in just one year so the changes in Non-Store, General Merchandise, Furniture/Electronics, Clothing and Bldg Materials are very significant. Each of the major divisions includes a number of sub segments. For example, General Merchandise includes Traditional Department Stores, Discount Department Stores, Supercenters and Clubs as well as $ and Value Stores. These specific retail channels can have even greater movement in share because this is the level that the consumer “views” when making their initial shopping choice. Change at this level is where any ongoing consumer shopping migration first becomes apparent.

Here is the Market Share change “Rule” for 2019: To gain 0.1% in Market Share your $ increase must exceed the amount generated by a 3.7% sales increase PLUS an additional $3.7B. Example: If a channel did $100B in 2018, they need to do $100 +$3.7 + $3.7 = $107.4B to gain just 0.1% in 2019 share. You will see channels with revenue increases that still lose share because their increase was less than 3.7%. It shows that even small changes in share are significant.

With that overview, we’re ready to drill deeper into the data. Let’s look at the 2019 performance of some of the specifically “Pet Relevant” Channels to see which are doing the best…and worst in gaining consumer spending. Eleven of the twelve were chosen because they generated at least 1% of the Total Pet Products (food & supplies) spending in the last Economic Census – 2012. I have also included Traditional Department stores on the list. Even though they have never truly embraced Pet Products, they have long been a fixture in the U.S. Retail Marketplace. Their continued decline, as consumers migrate to outlets which better fit their needs, has profoundly affected U.S. retail shopping as generally they were the “anchor” stores for the Shopping Malls across America.

We will use 2 graphs to illustrate the situation in these Pet Relevant Channels. The first will show the % change in sales in 2019 vs 2018. The next will “show us the money” – $ gained or lost. Then we will have observations on each segment.

Remember, you must be up at least 3.7% or you’re losing market share!

8 of these pet relevant channels are showing increased sales. However, in market share, only 2 are gaining, while 10 are losing. It is no surprise that internet/mail order is the breakaway winner. However, in addition to moving online, the other trend that is apparent is that consumers are also shopping more frequently at retail specialty stores, like Pet. In the next chart, we’ll “show you the money!” Remember, the Total increase for the “Relevant Retail” Market was $132B and you must be up 3.7% PLUS $3.7B just to gain just 0.1% in Market Share.

The spectacular growth of the Internet is obvious and becoming more dominant as the $ increase in this segment was more than double the combined increase of Supermarkets, SuperCenters/Clubs and Home Centers. The increase by $ Stores slowed in 2019 but their continued growth is evidence that consumers want value plus the convenience offered by these smaller outlets. The A/O Miscellaneous segment continues to maintain and gain as consumers desire more personalized service in certain categories – like Pet Products. One bit of information is concerning. Farm stores declined in sales for the second consecutive year. They are a small retail channel, but a key outlet for Pet Products.

OBSERVATIONS BY CHANNEL (Note: % of Total Business from Pet Products for stores that stock Pet)

  • Internet/Mail Order – $688.9B, Up $85.2B (+14.1%) – 64.7% of the total increase for the $3.7T Relevant Retail Market came from Internet/Mail Order. In fact, they generated 39.8% of the increase in the Total U.S. Marketplace. The Consumer Migration to this channel continues and is even accelerating as they gained +1.7% in Market Share. In 2016 they passed SuperCtrs/Clubs in sales and this year they edged out Supermarkets for the top segment spot in the entire market. Note: Sales on TV are also included in this group. (1.2% Pet)
  • Super Markets – $667.4B, Up $21.0B (+3.3%) Despite increasing sales, this large sub-segment continues to lose ground. Sales are up $80B since 2015 but Market Share is down 0.41%. The Internet/Mail order channel has increased focus on grocery products and became the leading retail channel in 2019. (1.6% Pet)
  • Department Stores – $42.6B, Down $5.1B (-10.7%). Their decline continues. 50 years ago, they “ruled” the GM category. However, they failed to adapt to the changing wants and needs of the consumer. One small example of this is their failure to address America’s growing relationship with our companion animals. (N/A Pet)
  • Discount Department Stores – $92.5B, Down $2.7B (-2.8%). The rise of this segment started the downhill slide of Department Stores but their tenure at the top of GM was relatively brief as the SuperCtrs/Clubs offered true 1 stop shopping. Now, they have to battle the Internet. After a small lift in 2018, sales turned down again. (2.3% Pet)
  • SuperCenter/Club Stores – $491.9B, Up $13.6B, (+2.8%). These outlets, with their broad mixture of grocery and general merchandise…at great prices, quickly became a dominant force in the retail market – second only to Supermarkets in Market Share for many years. In 2016 they were passed by Internet/MO. Consumers still like them as their sales are still growing, but not enough. They continue to lose market share – Down 0.1%     (2.4% Pet)
  • $ & Value Stores – $85.2B, Up $2.5B, (+3.0%). – A Great Value and easy to shop – 2 of U.S. Consumers’ major “wants”. This segment has shown steady growth in recent years, but it slowed in 2019. (4.3% Pet)
  • Drug Stores – $292.1B, Up $7.1B, (+2.5%). There still is a lot of turmoil in this segment. Intense competition has led to a large number of mergers and acquisitions, which have slowed growth. (0.3% Pet)
  • Sporting Goods – $1.8B, Down -$0.7B, (-1.6%). A Minor player in Pet. The turmoil in the category caused by mergers, acquisitions and store closings has slowed but they continue to lose share. (N/A Pet)
  • Home Centers – $298.2B, Up $3.1B, (+1.0%). These large, “project driven” outlets have never done a significant Pet Business. The top 2 retailers, Home Depot & Lowes are the drivers, but overall, they lost -0.2% in share.     (0.6% Pet)
  • Hardware – $27.3B, Up $0.5B, (+1.9%). Extensive weather damage in 2017 & 2018 had a huge impact on this channel, turning sales sharply upward. 2019 was a little calmer and sales plateaued. (2.6% Pet)
  • Farm and Garden Stores – $42.0B, Down -$1.3B, (-2.9%). This segment has been growing in recent years in both overall sales and in Pet, but it was largely driven by Tractor Supply. However, like 2018, a strong increase by TSC in 2019 couldn’t overcome the decline in sales from other outlets. Market share is down 0.2% since 2017. (8.9% Pet)
  • A/O Miscellaneous Stores $87.0B, Up $5.1B, (+6.3%). Florists, Pet Stores, Art Dealers…are typical of the segments bundled into this group. Pet Stores account for over 20% of the $ in this segment. These stores, whether chain or independent, tend to be small to medium in size. Their increase again exceeded the market so these stores, which focus on another consumer trend – a more personalized shopping experience, are “holding their own” against the large format retailers and the internet. +0.1% in share since 2015. (Pet Stores $ are 91% Pet Products)

The chart below puts the Market Share of each of these segments for 2019, 2018 & 2017 in a visual format so that it is easier to appreciate the relative sizes. Growth in share since 2017 is indicated by a green box, a decline is boxed in red.

Now we’ll wrap it up with a brief summary and a detailed chart for future reference.

SUMMARY 

Pet Stores remain the #1 channel for Pet Products. However, in the Relevant Retail Market, there are 3 Olympic Medalists. SuperCenters & Clubs are firmly entrenched with the Bronze medal. Since 2016, the race for the Gold has been between SuperMarkets and the Internet/Mail Order Channel. In 2019, Internet/Mail Order gained 1.7% in share and took the Gold away from Supermarkets/Grocery for the first time… ever. Supermarkets and other channels are trying to fight back by creating and emphasizing online ordering programs. However, it appears to be too little, too late to stave off the internet juggernaut.

In 2019 the annual increase in the Relevant Retail market slowed to 3.7%, after 2 years of increasing rates. Although, like that last slow year, the increase in the “Relevant Retail” market was larger than the increase in the Total Retail Market. In 2019 Gasoline prices were again a major factor as they stabilized and flattened sales, which lowered the Total Retail increase. The Internet/Mail Order Channel provided the only excitement and 64.7% of the growth in Relevant Retail. SuperMarkets, SuperCenter/Clubs, Drug and Home Centers increased sales by $44.8B but all lost market share. Traditional & Discount Department stores continued their decline while sales growth in the easy to shop and save, $ Stores also slowed. Besides Internet/ Mail Order, only the small to medium A/O Miscellaneous Stores (Includes Pet) gained ground in the market by appealing to consumers desiring a more personalized shopping experience.

The U.S. Retail Market continues to grow and evolve as the consumer migrates to the channels which best fulfill their current wants and needs. This is not a new phenomenon. It has always been that way. In 2019, the “Channel of Choice” is Internet/Mail Order. Now, with the current health crisis and resulting retail shut down, the environment has radically changed. Internet/Mail Order will prosper but shopping in many Brick ‘n Mortar stores may be changed forever.

Finally, the Chart below contains Detailed 2017 > 2019 Sales Performance Data for over 30 U.S. Retail Channels.

 

 

 

 

 

 

U.S. PET INDUSTRY $ALES IN 2019: $95.7B – TAKING A CLOSER LOOK

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Global Pet Expo was the showcase of the Pet Industry. It also was the forum for a major announcement from the American Pet Products Association (APPA). The revenue for the Total Pet Industry in 2019 was stated to be $95.7B. This was a huge change from 2018 numbers of $72.56B. The difference “is a result of APPA’s efforts to refine and improve its research methodology. In some cases, categories have been revised to include services or products that were previously excluded as reliable data was difficult to obtain.”

The APPA also produced revised numbers for 2018 so a comparison between the 2 years is possible. They reported that in 2018 the Pet Industry totaled $90.50B. That is $17.94B (24.7%) more than they had previously reported. That is a big revision. Let’s put an $18B increase in Consumer Spending into better perspective. $18B is 40% more than we spent on bread in 2018 and about equal to the spending on each of these categories …

  • Fresh & frozen chicken
  • Fresh Milk & Cream
  • Coffee & Tea at home
  • Beer & Wine “out on the town”
  • All non-prescription drugs
  • Non-business computers & hardware

That is a big gap in data. We can’t compare current data to years earlier than 2018 so in effect 60 years of Pet Spending History has been wiped out. It has also been removed from the APPA website so, we are left with the “here and now”…

In 2019 the APPA reported $95.7B for the Total Pet Industry. This is a $5.2B (5.75%) increase over $90.5B in 2018. As we have done in the past, we will take the APPA Retail numbers and figure in the impact of inflation or deflation so that we can see the true change in the amount of goods and services.

Since 2009 and the Great Recession, inflation has not been a big factor in the Pet Industry. In fact, both Food & Supplies have had multiple years of deflation since then. The Services segments have also dialed back their price increases to a certain extent. 2017 saw an all-time record low inflation rate of 0.4% for Total Pet. In 2018, it moved up slightly to 1.25% but in 2019, it almost tripled to 3.25%, the highest rate since 2009. Increasing prices can slow consumer spending in discretionary segments, like Supplies. In Veterinary Services spending, strong inflation has reduced the frequency of visits, especially among lower income groups.

Here are the specifics from 2019.

Pet Food and Services had the best year of any groups but still over 40% of the spending lift came from price increases.

  • Pet Food – In 2018 Pet Food prices deflated slightly, -0.02% so a CPI increase of 2.88% in 2019 was a big turnaround. However, the segment still generated a relatively strong “real” increase of 4.09%.
  • Pet Services – There has been strong competitive pressure in this segment as more outlets began offering services. This expansion may have stabilized as inflation returned to a more “normal” rate of 2.51% for this segment. The demand for Services is still there as real growth of 3.68% was the second best of any industry segment.
  • Veterinary – The Veterinary segment is known for strong inflation. Since they began measuring it in 1997, Veterinary prices have increased at a rate 35% faster than human medical care. The inflation had slowed in the last two years, but it bounced back in 2019 with a rate of 4.14%, the highest rate since 2011 and 18% higher than human medical care. We see the impact on the numbers as over 71% of a 5.8% Retail increase was from prices.
  • Supplies – Since the great recession, many categories in this segment have been commoditized. This means that inflation/deflation noticeably affects consumer spending. The tariffs which began late in 2018 drove prices up 2.83% in 2019. As a result, real growth was only 0.38% as prices accounted for over 88% of a 3.2% increase.

The next chart puts the 2019 increases into a more “visual” perspective.

This makes it readily apparent that the major driving force behind the increase in Retail Pet $ in 2019 was inflation. This is somewhat of a surprise compared to recent years. Since 2009, the depth of the great recession, the average annual inflation rate for Total Pet through 2018 was 1.31%. During the same period, the overall U.S. annual inflation rate averaged 1.76% so Total Pet was a relative “value” compared to other consumer expenditures. However, as we all know by now, we need to look deeper. While both of the Services segments maintained an inflation rate above the national CPI, Total Pet prices were driven down by 5 deflationary years in both Food and Supplies. In fact, Supplies’ prices in 2018 were 4.3% below the level in 2009. In 2019 Total Pet Inflation jumped up to 3.25%, 148% higher than the average of the previous 9 years. Is it any wonder that it was such a big factor in spending?

As we have seen in our demographic analysis of Pet Spending from the US BLS Consumer Expenditure Survey, money (income) is the single biggest factor in increased spending. Price changes can cause significant changes in spending behavior in the more discretionary segments. Since 2009 Supplies have been on a spending roller coaster as prices moved up and down in the short term. Veterinary inflation has caused a reduction in visit frequency and depressed spending in lower income groups. The Services Segment is the most discretionary, but an increased number of outlets and the resulting competition have reduced inflation and driven big increases because pet parents do like and want the convenience of Services. For years, Pet Food was immune from the impact of inflation. After all, you don’t buy more pet food than you need just because it is cheaper.  Then came the era of Super Premium Foods. At first, these foods were only available at an exceptionally high price so the first wave of consumers to upgrade were generally better educated with higher incomes. Then came a savior, (or demon, if you prefer) the internet. Suddenly prices were more affordable for more people. The mass market stores also stepped in. The overall increased competition flattened and even deflated prices, so a new wave of Super Premium upgrades produced a much deeper market penetration of this food category.

Now, let’s get back to the present. Although we can’t compare 2019 to any year other than 2018, we can look back to the beginning of the Pet Industry and compare it to the industry’s long term growth, even with the revised numbers.

The earliest data that we have from any source is from the US BLS Consumer Expenditure Survey in 1960. Total Pet Spending in that year was $1.08B. That may seem incredibly small but becomes believable when you consider…

  • 57% fewer H/Hs (73m less)
  • Only 40% of H/Hs had a pet
  • Value of $1 in 1960 was $8.64

Let’s do the math and compare the long term Retail $ & Real Growth rates to the 2018>2019 increase:

  • Average annual retail growth
    • 1960 > 2018: +7.9%
    • 2018 >2019: +5.7%
  • Average “Real” annual growth
    • 1960 >2018: +4.2% (53.2%)
    • 2018 >2019: +2.5% (43.4%)

Obviously, 2019 wasn’t an auspicious start to a new “era”. The lower retail growth is understandable as it becomes more difficult to maintain a % growth rate over a long period. The big concern is the percentage of growth that is real. It was below 50%, which is certainly below the norm. To generate a “normal” year, the growth in 2019 needed to be +$6.3B,  $1.1B more than we got. Veterinary inflation needs to be dialed back and we need relief from tariffs on Supplies.

Now, we have an unexpected and even bigger factor, COVID-19. The rapidly growing pandemic has had an immediate and sometimes devastating impact on the U.S. marketplace. Together, we will get through this health and business crisis. However, the long term impact on consumer spending behavior is unknown. We’ll just have to wait and see.