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February retail market: US sales jump 5.3%; 2 retailers file bankruptcy

U.S. retail sales jumped in January after three months of declines as consumers spent more on electronics and furniture following a disappointing holiday season.

"After an overwhelmingly disappointing holiday season... the consumer appears to have found more solid footing as we head further into the new year, willing to satisfy some pent-up demand for everything from electronics to furniture to clothing," Lindsey Piegza, chief economist at Stifel, said in a note.

Meanwhile, two retailers turned to bankruptcy courts from late January through mid-February, according to an S&P Global Market Intelligence analysis. Employment in the retail sector declined in January from December.

Retail sales

U.S. retail and food services sales in January increased 5.3% to $568.22 billion from December, according to a report released Feb. 17 by the U.S. Census Bureau.

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Quincy Krosby, chief market strategist at Prudential Financial, said via email that a decrease in COVID-19 cases and rising vaccinations helped lift consumer confidence, which resulted in higher retail spending. "[U]nderpinning the strong retail sales numbers is the disbursement of checks from the late December relief package. A debate regarding what consumers would do with the checks focused on saving versus spending. Clearly, Americans spent part of the government check," Krosby said.

Stifel's Piegza cautioned one month of "solid" spending does not suggest the U.S. consumer is out of the woods. "With labor market conditions still fragile and the broader recovery in the economy still uncertain... the average American is still struggling. Nevertheless, a pop in activity is a welcomed step in the right direction."

In January, spending at electronics and appliance stores jumped 14.7% to $7.8 billion from December. Furniture and home furniture stores posted a 12% increase in sales to $11.35 billion.

Nonstore retailers, a category that includes e-commerce companies such as Amazon.com Inc., registered a sales increase of 11%.

Commenting on January numbers, Moody's Vice President Mickey Chadha said in a note that while he does not expect this pace to continue indefinitely, Moody's continues to expect retail sales to rise between 3% to 5% in 2021.

Consumer prices

The consumer price index increased 0.3% in January from December, a report released by the U.S. Bureau of Labor Statistics shows.

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On a year-over-year basis, prices rose 1.4% before seasonal adjustments. Food prices rose 0.1% in January, while energy prices jumped 3.5%.

Apparel prices increased for the third month in a row at 2.2%.

Bankruptcy

Two Market Intelligence-covered U.S. retail companies filed for bankruptcy in late January and early February, bringing the bankruptcy count in 2021 to six. Beauty products retailer L'Occitane Inc. filed a voluntary petition for Chapter 11 bankruptcy, while MMD Holdings LLC, which supplies model toy kits, filed to liquidate under Chapter 7.

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Employment

The retail sector lost 37,800 jobs in January, down to 15.2 million jobs. That represents a monthly decline of 0.25%, according to data from the Bureau of Labor Statistics.

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Employment at electronics and appliance stores declined 6.74%, or 29,300 jobs, to 405,200 jobs. Nonstore retailers shed 14,800 jobs during the month, down 2.43% to 593,400.

Jobs at general merchandise stores fell 38,300 jobs in January. Clothing and clothing accessories retailers added 14,800 jobs.

Vulnerability

A February analysis of the one-year probability of default scores identified 15 public retailers with scores ranging from 31.2% to 11.1% and corresponding implied credit scores of "ccc-" to "ccc+."

Health supplements retailer Merion Inc. continued to lead the list as the company's one-year probability of default remained unchanged from January's iteration at 31.2%. The company did not respond to a request for comment.

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