The National Retail Federation, the world’s largest retail trade association, recently reported the 2017 retail holiday shopping season had shattered expectations. Generating $691.9 billion in sales, revenues grew by 5.5 percent over the 2016 season total — the largest annual gain since 2010, and well above the 5-year annual growth rate of 3.5 percent. The NRF had projected a growth rate between 3.6 and 4 percent. Sales figures exclude auto dealers, gas stations and restaurants.

The retail holiday season, the 61 calendar days in November and December, represent, on average, around 20 percent of American retailers’ annual sales. In fact, the holiday season can generate nearly 10 times the sales revenue than the industry’s second largest shopping season, the back-to-school season.

The robust holiday season saw year-over-year growth in all retail categories except sporting goods, which declined by 0.5 percent. The largest gain was in building materials and supplies, which increased by 8.1 percent. Furniture and home furnishings grew 7.5 percent, while electronics and appliances gained 6.7 percent. Driving this surge, the NRF cited a strengthening U.S. economy, high consumer confidence and a strong labor market.

However, the data also highlights the increasing transition of sales from traditional retail stores to e-commerce. According to First Data, a global leader in retail payment processing, online sales grew at a 10.4 percent pace this holiday season, compared to just 4 percent growth for traditional storefronts. In 2016, online transactions represented 8.1 percent of all retail sales in the U.S. But the shift toward e-commerce is clearly trending higher, while the impact to retail stores has been significant.

In 2017, 6,985 retail stores were closed, a 240 percent increase from 2016. The three largest store closings were RadioShack (1,470), Payless (700) and Rue21 (400). Sears Holdings, the owner of retail mainstays Sears and Kmart, closed a combined 358 stores in 2017. An additional 64 Kmart and 39 Sears stores are scheduled to be closed this year. Walmart plans to close 63 Sam's Club stores, including one in Moline. The Ascena Retail Group, parent company to retail brands The Loft, Lane Bryant and Ann Taylor, among others, is scheduled to close an additional 268 stores in 2018. Unfortunately, the list of announced retail store closings in 2018 is extensive, and far from complete.

The retail industry’s impact on the economy is massive. It is the nation’s largest private sector employer, supporting an estimated 25 percent of all jobs. Consumer spending on goods and services, the key driver of the American economy, accounts for more than two-thirds of all economic growth. The resurgence and strength of the retail industry in 2017 was instrumental in driving the economy’s current accelerated pace of growth.

Despite the retail industry’s growth in 2017, its gradual and steady shift to e-commerce has resulted in sizable job losses. In 2017, the U.S. economy generated 2.05 million non-farm jobs. However, of the 13 major sectors of the economy, only retail (-66,500) and publishing and telecommunications (-40,000) lost jobs.

Of all online retailers, the largest by far is Amazon, which in 2017 controlled an astounding 44 percent of all online retail sales. Its 2017 sales are estimated to reach a massive $177 billion. Moreover, analysts expect its sales to increase 30 percent this year, and a further 29 percent in 2019.

In response, traditional retailers, both large and small, have been building up their own e-commerce platforms, using higher-margin online sales to offset the costs of their storefront operations. But retail stores aren’t going away. Many are growing their physical locations. Dollar General announced it will open 900 new stores this year. Dollar Tree, Ikea, Ulta and TJX — parent company of Marshalls, HomeGoods and T.J. Maxx — also have plans for expanding storefront footprints. Their success, retail experts contend, is competing on convenience, price and differentiating themselves from both online and storefront competitors.

Mark Grywacheski spent more than 14 years as a professional trader in Chicago, where he served on various committees for multiple global financial exchanges and as an industry Arbitrator for more than a decade. He is an expert in financial markets and economic analysis and is an investment advisor with Quad-Cities Investment Group, Davenport.

Disclaimer: Opinions expressed herein are subject to change without notice. Any prices or quotations contained herein are indicative only and do not constitute an offer to buy or sell any securities at any given price. Information has been obtained from sources considered reliable, but we do not guarantee that the material presented is accurate or that it provides a complete description of the securities, markets or developments mentioned. Quad-Cities Investment Group LLC is a registered investment advisor with the U.S. Securities Exchange Commission.

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