CGP: Retail sales to rise 7.2% to $4.79 trillion in 2022 — buoyed by inflation

Retail sales growth will start to normalize this year even as inflation shakes stores as well as shoppers.

That’s according to Customer Growth Partners’ 2022 Annual Forecast which said that retail sales will slow sharply from 2021’s torrid 14.1% pace — the highest on record — to increase 7.2% in 2022, to a record $4.79 trillion, up from $4.47 trillion last year. Despite the steep year-over-year slowdown, the 7% increase would still represent the second-fastest growth this century—behind only 2021’s pace.

“By any measure, 2022’s growth will be exceptional, especially on top of last year’s hypersonic pace, with significant growth in all merchandise categories,” said Craig Johnson, president, CGP, a retail research and consulting firm.

The growth, however, is buoyed by today’s near-8% inflation, which accounted for about a third of 2021’s 14.1% growth, and is driving over half of 2022’s 7.2% growth.

“Meanwhile, 2022’s organic growth of some 3.5% is normalizing close to past levels,” Johnson said.

Apparel and accessories will outpace all other merchandise sectors, with year-over-year growth predicted at 13%, according to the CGP forecast. (See end of article for highlights on individual merchandise sectors.)

INFLATION
Forty-year high Inflation — whether from higher raw material costs, supply chain bottlenecks or record Federal spending — continues to reshape the retail landscape. Inflation has long been a two-edged sword for retailers, Johnson explained, boosting comps on the one hand but reducing shopper spending power, especially for discretionary spending.

“For consumers, the 8% inflation has been an unvarnished disaster, eroding real incomes since wages and salaries are up barely 5%--with the inflation “tax” falling most heavily on lower-income and fixed-income households,” he said.

Johnson predicted that inflation is likely to persist through most of 2022, if not well into 2023. He also noted that while consumer fundamentals are still strong, they are not quite so strong. A year ago, consumers were sitting on a “dry powder” savings of $4.0 trillion, which in 2021 they spent down to only $1.3 trillion now — a level almost identical to the $1.2 trillion in the last full pre-COVID quarter (fourth quarter of 2019), Johnson explained.

“Without the extra $2.7 trillion in dry powder—and in the face of steep inflation, the risk in our forecast is to the downside,” he said. American consumers are remarkably resilient, but they are not infinitely resilient.”

CATEGORY SECTORS
Highlights from CGP’s 2022 Annual Forecast are below.

• Apparel and accessories will outpace all other merchandise sectors, with a year-over-year growth forecast at 13%, down from a stellar post-Covid rebound of 48% in 2021.

• Sporting goods, toys and hobby stores will grow a robust 11%, with particular strength in sporting goods and arts and crafts.

• Department stores will ease from their torrid 22% 2021 growth, but will still enjoy solid 11% growth in 2022.

• Online/direct to consumer will slow from 2021’s 13% growth to an unexceptional 9%, but will reach $1.13 trillion in total 2022 sales, as the largest sector.

• General merchandise and discounters will grow by 8% year-over-year (excludes department stores).

• Electronics and appliances will increase by 8% year-over-year, rebounding from relatively soft holiday and January sales.

• Slower categories will include home furnishings and food and beverage stores.