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Big Data Satellite imagery analysis suggests activity weakness at U.S. retail locations1
J.P. Morgan’s Global Research team is using the latest technology to gain important insights into the U.S. retail space. Leveraging satellite imagery from Orbital Insight, our Research team used proprietary machine learning-based image recognition technology to count cars in parking lots across the country. From these daily analyses, our team identified trends and forecasts for the retail and tech sectors.1
spanning multiple years using proprietary machine learning-based image recognition technology
These numbers are in line with the overall trend we have seen in recent years: average holiday traffic across a sample of 11 retailers we cover moved from positive low-single digits in 2014, to flat-ish in 2015, to negative mid-single digits in 2016.
Department stores have seen some success when they have exclusive and limited distribution agreements with national brands which draws consumers into the store.
E-commerce is a contributing factor to the decline in mall parking lot traffic, as retailers increasingly go online for purchases. Tighter inventory control at retailers post-financial crisis and the rapid growth of e-commerce has changed the competitive landscape.2
Strategic change is underway. J.P. Morgan overlap analysis found that over 65% of department store national brands are sold direct on certain online channels today, and private label brands are a key differentiator.
Taking a step back, in order to compete with online, retailers will need to focus on improving the in-store experience and customer service. The best-positioned retailers are those that have already laid the groundwork to create a unique customer experience. Additionally, consumers may see sooner and more aggressive spring sales events.
1J.P. Morgan U.S. Equity Research – Big Data Satellite imagery analysis suggests activity weakness at U.S. retail locations. Various. December 2016.
2J.P. Morgan U.S. Equity Research – Digging Deeper: Defining Differentiation to Survive the New Retail Reality; Overlap Analysis & Pictorial: Boss, Matthew. 06 June 2016.
Spring Boost for Consumer Spending after Q1 Lull
J.P. Morgan U.S. economist Michael Feroli sees the broader picture as a positive for the economy and accelerating U.S. GDP, despite light retail sales numbers and a lull in consumer spending in the near term.*
Here’s what the economic data is showing about U.S. consumers:
Some of that weakness in Q1 real consumption growth may be temporary as warm weather depressed utility spending in January and February to its weakest two-month stretch in over 25 years. The slow payout of tax refunds may have also hindered spending growth in the first two months.
One factor depressing real consumer spending has likely been the recent energy-driven rise in headline inflation, which has depressed the real purchasing power of consumers’ nominal incomes. Some relief appears on the way, and in February the headline CPI increased only 0.1%, the smallest gain since last July. Other indicators also show inflation remains relatively stable.
Momentum appears to be carrying on from the first few months of the year. Business manufacturing surveys have been upbeat, and we are tracking a 3.8% pace of industrial production growth in Q1, the strongest quarter since early 2014.
Despite some headwinds, J.P. Morgan’s top-line U.S. economic outlook for the second half of the year is unchanged in a nod to easier financial conditions and continued upbeat sentiment gauges. An open question is whether the elevated sentiment readings are a natural product of the business cycle or are in anticipation of action out of Washington, D.C. If it is the former then growth prospects seem well-supported, if it is the latter the fate of policy developments in coming weeks could have a magnified impact on the outlook for the rest of the year.
*J.P. Morgan Economic Research – United States. Feroli, Michael. April 2017.
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