What’s Holding Back The Retail Sector?

Behind the Numbers had some interesting comments on the retail sector in this week’s Thursday Thoughts:

Tuesday’s front page article in the WSJ did a nice job explaining how rising costs and shifting spending habits are stifling the consumer’s discretionary shopping. While such a premise may seem suspect in an environment of low inflation and ultra-low interest rates, consumers are funneling much more money to a few specific, often fixed cost items, than they were just a few years ago. These higher fixed expenses appear to be limiting Americans’ ability to purchase discretionary goods. [Emphasis mine]

Although the employment situation has improved markedly from the financial crisis, progress has been slow and wage growth has been particularly disappointing. Meanwhile, the WSJ found that health care spending by middle income Americans grew by 24% between 2007 and 2013. Another area sapping consumer finances is internet service. The middle 60% of consumers (by income) has ramped the amount they spend to access the web by 80% over the last half-decade. Spending on cable and satellite TV is up 24% for this group. While smart phones may have made life more convenient for Americans, the middle 60% has seen their cell phone spending jump by 50%.

Charles here. I expect the increased on cable and satellite spending to go into reverse soon. Consumers are increasingly pushing back against rising cable bills, and HBO just fired a major warning shot to the industry with its announcement that it would be selling directly to consumers via its streaming service starting next year. That entire business model is on the verge of unraveling, but that is a longer conversation for another day.

Getting back to discretionary spending, lower electric utility and gas bills from falling energy prices also free up a modest amount of cash, though we’re talking about $100-$200 per family per month at most. Meanwhile, the overall picture looks terrible. As Behind the Numbers continues,

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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