The Census Bureau shared ADVANCE MONTHLY SALES FOR RETAIL AND FOOD SERVICES, JULY 2021, with the following headline- “Retail trade sales were down 1.5 percent (±0.5 percent) from June 2021, but up 13.3 percent (±0.7 percent) above last year.” Month-over-month sales in Furniture & Home Furniture and Food & Beverage Stores fell 0.6% and 0.7%, respectively, as Electronics & Appliances and Food Services & Drinking Places went up 0.3% and 1.7%, respectively. Year-over-year Clothing & Clothing Accessories and Food Services & Drinking Places were up 43.4% and 38.4%, respectively, as Food & Beverage and Grocery Stores were down 2.3% and 2.2%, respectively.
Evaluating these metrics, especially Food Services & Drinking Places, over the shorter or longer x-axis illustrates better consumer activity now compared to 2020. Alongside the ADVANCE MONTHLY SALES FOR RETAIL AND FOOD SERVICES, JULY 2021, the Census Bureau also shared MANUFACTURING AND TRADE INVENTORIES AND SALES, JUNE 2021 that provides an Inventories to Sales ratio, which looked at historically allows for a postulation.
The Total Business Inventories to Sales Ratio for June 21 was 1.25 compared to 1.26 last month and down from 1.41 last year. Inventories to Sales Ratio across Manufacturers, Retailers, and Merchant Wholesalers were down compared to the previous year. Only, Inventories to Sales Ratio for Building Materials, Garden Equipment & Supplies increased from 1.49 last year to 1.72 as of June 21(p) as the Inventories to Sales Ratio for Total Retail Trade fell from 1.22 last year to 1.08 as of June 21 (p). The adoption and increased reliance on omnichannel retail practices such as app-based ordering and drive-up pickup have translated to efficient inventories.
The following chart highlights Retailers: Inventories to Sales Ratio starting 1992 from FRED, Federal Reserve Bank of St. Louis. The chart covers the broader Inventories to Sales Ratio and two specific categories- Department and General Merchandise Stores.
The Ratio offers a synopsis and a relational understanding between Inventories and Sales since isolating and looking at those numbers individually can be a little too vague. Looking at this ratio, in essence, allows understanding the movement of widgets across the chain and its efficiency.
Since 1992, there has been a gradual decline in the Inventories to Sales Ratio across all categories. However, isolating for the last ten years, one can notice that the Inventories to Sales Ratio has remained relatively stable. The pandemic and its societal effects can be credited to the uptick seen in 2020, but its trajectory post-2020 allows for an interesting postulation. Adapting to a new normal with the art of selling on electronic interfaces would have required a sincere fine-tuning of inventory practices. Quick touch service translated to better sales but also demanded better inventory practices. Retailers offering multiple avenues to attract sales need to maintain accurate inventory across each channel to ensure an interaction translates to a deal.
One could translate the current recordings on the Inventories to Sales Ratio to Retailers executing better inventory practices. Moreover, interactions on an electronic interface render valuable information on the customer and their habits, which are not the same as hypotheses or inferences made from observed behavior on site. Therefore, Retailers have opportunities to curate their inventories to meet the demand from previously recorded patterns. There could be an alternative explanation where Retailers are finding it challenging to maintain inventories which can be discredited if the sales performance of many retailers during the pandemic is considered.
It would be interesting to follow the chart for the next 6-18 months to see if the trajectory on these lines reverts to levels seen before the pandemic. Click here to bookmark the chart and follow along.