CGP: Holiday sales driven more by inflation than by organic growth

Inflation had a big impact on 2021’s record holiday sales growth.

Despite Omicron-depressed traffic in late December, U.S. retailers recorded all-time record growth of 13.7% year-over-year for the 2021 holiday season, according to retail consultancy Customer Growth Partners, which has tracked holiday sales since 2001. Based on CGP’s Retail Growth Vectors model and the latest Census Bureau data, holiday sales reached $859 billion for the November-December 2021 season, up from $755 billion in 2020.

However, more than half of the overall sales growth was driven by the current 7% consumer price inflation, the highest in 40 years, reported CGP. Organic (inflation-adjusted) growth accounted for 6.7% of the increase.

Still, according to CGP president Craig Johnson, the organic growth of 6.7% was “the strongest seen this century, just outpacing last year’s inflation-adjusted growth of 6.6%.”

“This is a strong sign of a healthy retail economy,” he added. “And a vote of confidence in the American consumer—showing that she is still out shopping, despite Covid, inflation and supply chain-triggered merchandise stock-outs.”

INFLATION
The role of inflation in driving nominal retail sales growth varies widely by merchandise sector. The apparel sector—after years of sluggish sales — topped retail sales growth with an exceptional increase of 33.1% year-over-year, according to the CGP report.   Only about 5.8% of this growth was supplied by inflation in the category, which is a relatively small sector with an 8% share-of-wallet.

However, food and beverages, the largest sector with 19% of total retail spending, saw inflation comprise 6.5% points of its total growth of 8.6%.  Consumer electronics, long a deflationary — and low margin — category, as expected showed the least inflationary impact. Only about 1.5% points out of its total increase of 13.8% from last year.

Looking to the New Year, the inflation and supply chain woes may well get worse before they get better, according to Johnson.

“Based on what our nationwide team is finding in our field research — across 50 major retailers and over 100 benchmark mall and off-mall venues — inflation is running over 8% January to date, he said.

Johnson noted that wages are now rising about 4.7% year-over-year, far lagging inflation rates, indicating — absent corrective action — that many households will be unable to keep up their current pace of spending going forward.

“American consumers may well be resilient, but they are not infinitely resilient,” he said.