As we head into the end of the year, the holiday shopping season and what looks like a resurgence of coronavirus cases across the country, it’s no wonder that the retail sector is drawing the attention of economists. If you are an accounting or bookkeeping professional serving clients in the retail sector, you’ll want to pay attention to these key market indicators that will impact them now and into 2021:
Holiday retail spending is likely to remain flat in 2020. The National Retail Federation (NRF) consumer survey indicates that on average, shoppers plan to spend plan to spend an average $997.79 this holiday season, down about $50 from last year as they focus more on gifts for others rather than purchases for themselves. Retailers with brick and mortar stores will need to focus on covid-related safety measures and early discounts to attract consumers. In the ecommerce sector, businesses will need to focus on service, price and the deliverability of goods.
Accounting professionals with clients in the retail sector will play a significant role in helping clients manage potentially lower income levels, inventory levels, cash flow issues, expenses related to payroll and coronavirus safety measures as well as tax implications of any potential federal business loan opportunities.
For a deeper dive into this topic, make sure to register for our webinar "Will Retail Rebound This Holiday Season and Into 2021? Get the Goods to Grow Your Practice in the Retail and E-Commerce Niche" on December 3, 2020 at 12:00 p.m. Eastern Time. You can register here.
Retail sales have rebounded, but creeping coronavirus cases may temper growth in 2021. According to NRF Chief Economist, Jack Kleinhenz, retail sales, “have largely recovered from the pandemic heading into the holiday season but the growing number of coronavirus cases remains a threat and additional federal stimulus could help keep the economy on track.” Kleinhenz points to the resiliency of consumers—even through the pandemic—as a key factor in helping retailers remain resilient despite market challenges. He also noted Commerce Department statistics showing that household spending on retail goods has helped bring back overall consumer spending, which was down 16.1 percent year-over-year in April but only 1.9 percent as of August, according to the Commerce Department.
NRF’s Monthly Economic Review notes that retail sales have been up month-over-month and year-over-year since June. The report also indicates that retail sales are up 8.6 percent since January, pulling in data from Harvard University’s Opportunity Insights research project.
Retail profitability is predicted to rise in 2021. Moody's Investors Service analysts are also more optimistic about the retail industry’s performance, changing their outlook for the U.S. retail industry to stable from negative in mid-October and forecasting that operating profits will rebound during the next 12-18 months, with the highest growth being seen in discretionary spending areas, which were hard-hit by pandemic reductions in consumer spending.
According to Moody’s data:
- Operating profit will increase about 20% in 2021 after dropping around 15% in 2020
- Aggregate 2020 operating profit is expected to fall by about 15%, rather than 25%-30% as previously expected and to grow by around 20% in 2021.
- Sales will grow by 3%-5% in both years for traditional retail, while online sales as a percentage of total sales are set to soar above 25% over the next five years.
The rise of e-commerce and growth in key traditional retail segments offer growth for accounting firms.
Clearly, there are significant opportunities for firms to tap into growth in the e-commerce niche as the pandemic continues to accelerate the shift in consumer shopping preferences online. Key considerations for serving these clients from an accounting perspective include sales tax compliance, inventory management and the accounting services that help ecommerce retailers mange sales data from a variety of e-commerce platforms.
Even with e-commerce sales booming, the traditional retail sector still has opportunity especially for firms who can specialize their service offerings for growing segments such as home improvement, grocery and food delivery services. If your firm can also develop e-commerce expertise, it may be able to help traditional retail clients transition to a full or partial online presence as well by offering strategic planning and client advisory services in this area.
For a deeper dive into this topic, make sure to register for our webinar "Will Retail Rebound This Holiday Season and Into 2021? Get the Goods to Grow Your Practice in the Retail and E-Commerce Niche" on December 3, 2020 at 12:00 p.m. Eastern Time. You can register here.