Data on the Data
Episode 12: Will the US consumer rebound continue?
In this week’s episode of Data on the Data, Jharonne Martis, Director of Consumer Research, Refinitiv, highlights the key trends across the consumer sector, where the sectors that require a physical presence, such as Airlines and Hotels, are now starting to see their recovery gather steam with the increase in vaccinations. A full recovery may, however, not be in place until 2023 because many of these businesses are still in a state of transition. Non-the-less, M&A trends have reached a record level and the growth in e-commerce sales continues at a double digit pace.
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Roger [00:00:06] During the pandemic, consumption patterns have been transformed with many sectors that could switch to an online presence seeing sales sky-rocket. Other consumer sectors which rely on a physical presence, have been far slower to recover. For the hotels, airlines and entertainment industries, vaccination rates matter. With the increase in vaccinations there has been a parallel increase in activity within these sectors, as consumers switch their spending back towards these services. The data shows that the recovery across the broad-based consumer sector, including retail, is still a work in progress that may still take a couple more years to fully achieve a pre-pandemic levels of spending.
Jharonne [00:00:47] The hotel, airline and entertainment industries have seen an improvement from 2020 in terms of revenue and net income. Still, the bulk of them, over 90 percent of them, are still operating at levels below pre-pandemic levels. When looking at the three sectors however, the hotel industry is the one that at least net income is starting to operate in positive territory, whereas the airlines mostly are still operating at a loss. And this is mainly because the airline industry is still suffering from weak international travel. Delta reported earnings last week, but was very upbeat about US vacation travel being back at normal levels. But still, the question is when will business travel start to pick up? And on top of that, the airline industry is also being hurt by higher gasoline prices. So all these headwinds are putting a damper on airlines, especially on international travel. And then on top of that, you have a Delta variant that is causing cases to spike all over again and is also hurting the entertainment industry. Now, having said all of this, analysts from Refinitiv are still bullish on certain stock names within these categories. Within the hotel sector, Marriott International is receiving a boost from its customer loyalty program, and within the entertainment sector, Caesars Entertainment is the one that analysts are most upbeat because of the reopening in Las Vegas. And then within the airlines, American Airlines is just reported, gave us a preview of its second quarter earnings, and it looks like it might not be as bad as initially expected. So as a result, analysts have been revising their earnings upwards for the airline.
Jharonne [00:02:36] When we look at the Refinitiv data, it is very clear that 2021 will be more of a transitional year. And it's not until the end of 2022 and the beginning of 2023 when we can start seeing earnings and net income start to operate back at pre-pandemic levels like they were in 2019. So as a result we're seeing that 2020 was the pandemic, 2021 will be the transition year, but a recovery won't start until 2022 and we can start seeing things going back to normal based on all of the headwinds we know today. Again, we'll start to see things normalize probably at the end of 2022, beginning of 2023.
Jharonne [00:03:19] The amount of money consumers spend online has gone up significantly, so much so that we're seeing a record number in e-commerce dollars at 2015 billion dollars last quarter. This is only expected to continue to grow in the double digits over the next four quarter. Refinitiv data's outlook looks at that. Still, having said that, e-commerce sales only accounts for about 13.6 percent of total retail spending, which is telling us that for the most part, consumers still prefer to go to the store and try on the shoe and pick up their own avocados at the supermarket. And that's exactly why retailers like Ross and TJ Max also continue to stay afloat despite the pandemic and despite the fact that they have very little e-commerce presence, because consumers still want to have an experience. They want to go to the store and have that treasure hunt experience and feel like they found a good value. So as a result, we're seeing that even though e-commerce will continue to grow, retailer, consumers still prefer to go to the stores. And that is, that will still be the main component of total retail sales in the United States.
Jharonne [00:04:29] In March of this year, we saw a spike of consumer spending that was fueled by the government stimulus. And as a result, consumers had gone out and really spent on that all that pent-up demand. But now what we're seeing is that finally in July, things are starting to slow down a teeny tiny bit as consumers are a little bit worried about inflation. Their June retail sales came in strong. But now for July, we're thinking that consumers are going to take a pause to see where things are going, especially because gasoline prices are so high. And then we might start seeing a pickup towards the end of August as students go back to school. And then things might slow down a little bit and then pick up for the holiday season, given all the headwinds that we're seeing this year.
Jharonne [00:05:20] Over the next four quarters, we're expected to see e-commerce continue to grow in the double digit growth. Still, having said this, this will start to slow down once things start to normalize. Still, it's very important to note that e-commerce is an industry that is heavily fueled by new technology and it's always changing. And as a result, it's always, there's always new pockets of growth. So even though we're going to start seeing a deceleration once things start to normalize, this is, this is a sector to watch closely because it's always going to continue to grow some, somewhat.
Jharonne [00:05:59] Our Refinitiv data shows that 2021 has been a record year for retail M&A, totaling about eighty eight point five billion dollars, of which one third is coming from Internet sales. We just saw that Etsy just acquired Depop in order to appeal to a bigger group of an audience. Depop is a second-hand marketplace that really tries to, that really appeals to Generation Z. So we're seeing that retailers are not lazy about their survival and they're trying to find ways to strategize, increase their portfolio and even acquire other companies that make sense in order to really appeal to a wider audience.
Jharonne [00:06:47] The consumer will return to the mall, we'll go back to restaurants and hop on airplanes, but they are not going to come out of that, this pandemic becoming more tech savvy. They have really been accustomed to a lifestyle where they're getting the product and the service that they want delivered in a very convenient way through all these apps, applications. And so they're going to be applying a hybrid model. This, they will they still want to go to the store and have the treasure hunt experience and purchase the items that they want and hold on, pick their own avocados. But at the same time, they're going to still want to use the virtual health care and talk to their doctors. And they also want to still do a restaurant delivery and curbside pickup. So we're going to see that the consumer is going to do a blended version, a hybrid version, and and really take advantage of the best of both worlds.
Roger [00:07:37] The last 18 months has been an era of extremes. First, the shock of the shutdowns, then the record stimulus that saw many parts of the retail sector, at least the ones that could switch to an online facility, experience recoveries to record volumes of sales. Other sectors that relied on us turning up in person, however, have been less fortunate. Spending patterns have clearly changed where those online facilities have supplanted the need for a physical presence. But old habits die hard, and consumers still like the experience of going out. The hotels, airlines and entertainment industries are taking much longer to recover, and we may be wary of close contact activities for some time. But with savings having shot up during lockdown, there will also be a full recovery in our desire for recreational activities.