General merchandise slowdown signals trouble for retail
What it means: The first few months of 2023 have indicated a shift in fortune for many sectors of the retail industry, and general merchandise may be an indication of what’s to come for other sectors.

Last year signaled a general shift in the tides for the retail industry, but so far in 2023, the retail recalibration appears to be on the horizon. As retailers begin to release their earnings for the first quarter, much of the narrative surrounds the overall cooling off of the retail industry. In many ways, consumer sentiment has finally caught up with all of the challenges during the past 18 months. Consumer savings are dwindling, credit card and BNPL usage is up, and the industry must prepare for a slowdown in spending while also communicating value. Still opportunities for sectors to engage with consumers and deliver the magic of retail exist, but creativity and agility is needed.
Overall retail sales in April grew by 0.5% compared to April 2022. To put that into perspective with price increases, inflation for April 2023 compared to last year was up 4.9%. Much of retail sales growth continues to come from higher average sales prices across the industry, and demand can no longer keep up with higher prices. And, performance isn’t linear across sectors. According to Circana, general merchandise dollar sales in April were down 7% compared to a year ago, while food and beverage sales were only down 2%. Essential retail continues to outperform discretionary sectors as consumers cut wants before needs. Retailers that have announced earnings for the first quarter, including The Home Depot and Target, cited that consumer spend is softening on discretionary categories compared to the height of the pandemic. Target also reported a decline in e-commerce comparable sales for the quarter, once again driven by lower demand for general merchandise.
So, what does all of this mean for the remainder of the year? It’s clear that the slowdown in general merchandise demand is real across the industry, and discretionary spending is likely to see a pullback through the remainder of 2023. Essential goods appear to fare better so far this year, but with higher prices on daily necessities, it is possible that consumers will also begin to make adjustments as needed across all categories. The industry must remain vigilant in providing value in products, prices and experiences for consumers. Stores are likely to continue to be strong assets for retailers who have invested in improving efficiencies, but e-commerce is likely to stagnate after the high use during the pandemic. The industry has always been a partner to the consumer during all types of economic conditions, and if the consumer is at the forefront of decision making, that relationship will last far beyond the current obstacles.
What’s next: With retail sales slowing for some retailers in online channels, e-commerce needs to be a focal point for the industry to preserve sales.