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There are signs the U.S. consumer is becoming more optimistic, even as COVID-19 concerns linger. Anthony Okolie speaks with Anita Bruinsma, Consumer Discretionary Analyst, TD Asset Management, about what the latest trends tell us about the economic reopening
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- Anita, the last time you and I talked in January, we discussed the outlook for the consumer sector, and specifically apparel sales for one, restaurants, and travel. Now, at that time, activity was fairly muted. How have things progressed over the past couple of months?
- Well, as restrictions have been lifted and vaccinations have been rolled out, we're certainly seeing signs of life in those parts of the consumer sector that have really been hurt by the pandemic. So we're seeing increased foot traffic to retail stores. We're seeing higher consumer confidence, people more comfortable going out. And overall, we're seeing higher spending in some of those categories that were really hurt.
And we're certainly seeing people going out and shopping in stores more often. So a company called ShopTrak provides this data, and they're showing that foot traffic to bricks-and-mortar stores is down just 8% relative to pre-COVID levels from 2019 levels. And if we think back to last March, that number was minus 80. So we've made some very good progression. And particularly in the last few weeks, people are getting out more. And actually, about 60% of Americans say they are comfortable shopping in the store right now.
And when we look in particular at the clothing segment, this is an area that's had a big leap up over the past few weeks as spring has emerged. And actually, clothing sales in bricks-and-mortar stores is actually up 20% to 40% relative to COVID levels. So clearly, there is strong pent-up demand for clothing, and people are excited to get out and shop.
Now, I'll mention too that just because people are going out into bricks-and-mortar stores, they are also still spending online. And e-commerce continues to be strong. We see e-commerce sales still almost double what they were prior to the pandemic.
- And what about restaurants? What trends are you seeing there?
- So we're seeing some similar trends in the restaurant space-- not quite as strong as they are in bricks-and-mortar retail, and particularly in clothing. But if we look at the number of seated diners and restaurants, so people who are eating in a restaurant, the seated diners is down about 20% to 25% relative to normal pre-COVID levels. And even just at the beginning of this year, that was minus 60. So we're seeing nice improvement, and more and more people are confident eating out in restaurants. And overall, restaurant sales are about 10-ish% higher than they were prior to COVID.
- And what can you tell us about travel?
- Well, as you imagine, travel is a sector that's going to take longer to recover. It's going to be slower to recover. But we're seeing some nice green shoots there as well. We're seeing people saying that they're more comfortable traveling. About 40% of Americans say they're comfortable traveling now. And we're seeing that in the numbers.
Spending on hotels is up. Hotel occupancy in the US is quite a lot higher. And even spending on airlines is finally showing signs of life. So even though airline activity remains very depressed, people are looking forward and booking flights for the future. And we're seeing this especially in the older cohort of consumers, the ones who were vaccinated first. So some encouraging signs for travel, even though it's still quite depressed.
- OK. So these are all positive signs. But do you think we're out of the woods yet, or do we still have some ways to go?
- Well, the recovery of the consumer is unlikely to be straight up, as much as we would like it to be. And there are several reasons for this. So first of all, in terms of traffic mobility, I mentioned that we're seeing good foot traffic to stores, but not all mobility is strong. So people are still not returning to their workplaces like they used to. Things like traffic congestion and use of public transit is still lower than it was prior to the pandemic. And then when we think about certain activities that people are still very nervous doing, so things like going to the movies and going to the gym, these areas have really not picked up yet.
The other thing I have some concern about is government stimulus. So a lot of Americans right now are getting checks in the mail for up to $1,400 per person, and a lot of these checks are being spent. And that's been great for consumption. But once this round of stimulus is over and if we don't get another round of checks being mailed out, I do think we could see a bit of a slide in consumer spending. And then, of course, we can't ignore the COVID variants and the concern as to whether the vaccinations can keep up with the spread of the variants. And actually, looking at very recent data from just the past week, we have seen a tick down in confidence in terms of people's comfort going out in public and eating in restaurants. So that can certainly be a risk.
Now, we do have positives that are good for consumer spending. The vaccinations are being rolled out quite quickly in the US. Consumer confidence has been rising. And most importantly, we have this massive pent-up savings that people have put aside during the pandemic, and they are saying that they're wanting to spend at least a portion of those savings once things re-open. So those are the positive signs. I'd say overall, though, it's still kind of a mixed bag.
- So given what we know with retail trends and certainly the vaccination rollout, how do you invest in this type of environment?
- Well, it is a bit of a tricky environment to invest in when it comes to the consumer sector. And that's because a lot of the companies in the sectors we just talked about have already rallied pretty significantly and are trading higher than their pre-COVID levels, and in some cases at all-time highs. And so at TDAM, the approach we take is we continue to focus on the high-quality companies that we think have good long-term growth opportunities.
So we like the restaurant space for the reopening trade. We own McDonald's and Starbucks because we think they have good long-term growth opportunities even beyond the reopening. In apparel, we like Aritzia and TJX and off-price. But we still also own some of those companies that have been COVID winners that we think are going to continue to win in the long term. And those companies would include Home Depot and Amazon.
- Anita, once again, thank you very much for your insights. And we hope to bring you back again soon.
- OK. Thanks, Tony.
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- Anita, the last time you and I talked in January, we discussed the outlook for the consumer sector, and specifically apparel sales for one, restaurants, and travel. Now, at that time, activity was fairly muted. How have things progressed over the past couple of months?
- Well, as restrictions have been lifted and vaccinations have been rolled out, we're certainly seeing signs of life in those parts of the consumer sector that have really been hurt by the pandemic. So we're seeing increased foot traffic to retail stores. We're seeing higher consumer confidence, people more comfortable going out. And overall, we're seeing higher spending in some of those categories that were really hurt.
And we're certainly seeing people going out and shopping in stores more often. So a company called ShopTrak provides this data, and they're showing that foot traffic to bricks-and-mortar stores is down just 8% relative to pre-COVID levels from 2019 levels. And if we think back to last March, that number was minus 80. So we've made some very good progression. And particularly in the last few weeks, people are getting out more. And actually, about 60% of Americans say they are comfortable shopping in the store right now.
And when we look in particular at the clothing segment, this is an area that's had a big leap up over the past few weeks as spring has emerged. And actually, clothing sales in bricks-and-mortar stores is actually up 20% to 40% relative to COVID levels. So clearly, there is strong pent-up demand for clothing, and people are excited to get out and shop.
Now, I'll mention too that just because people are going out into bricks-and-mortar stores, they are also still spending online. And e-commerce continues to be strong. We see e-commerce sales still almost double what they were prior to the pandemic.
- And what about restaurants? What trends are you seeing there?
- So we're seeing some similar trends in the restaurant space-- not quite as strong as they are in bricks-and-mortar retail, and particularly in clothing. But if we look at the number of seated diners and restaurants, so people who are eating in a restaurant, the seated diners is down about 20% to 25% relative to normal pre-COVID levels. And even just at the beginning of this year, that was minus 60. So we're seeing nice improvement, and more and more people are confident eating out in restaurants. And overall, restaurant sales are about 10-ish% higher than they were prior to COVID.
- And what can you tell us about travel?
- Well, as you imagine, travel is a sector that's going to take longer to recover. It's going to be slower to recover. But we're seeing some nice green shoots there as well. We're seeing people saying that they're more comfortable traveling. About 40% of Americans say they're comfortable traveling now. And we're seeing that in the numbers.
Spending on hotels is up. Hotel occupancy in the US is quite a lot higher. And even spending on airlines is finally showing signs of life. So even though airline activity remains very depressed, people are looking forward and booking flights for the future. And we're seeing this especially in the older cohort of consumers, the ones who were vaccinated first. So some encouraging signs for travel, even though it's still quite depressed.
- OK. So these are all positive signs. But do you think we're out of the woods yet, or do we still have some ways to go?
- Well, the recovery of the consumer is unlikely to be straight up, as much as we would like it to be. And there are several reasons for this. So first of all, in terms of traffic mobility, I mentioned that we're seeing good foot traffic to stores, but not all mobility is strong. So people are still not returning to their workplaces like they used to. Things like traffic congestion and use of public transit is still lower than it was prior to the pandemic. And then when we think about certain activities that people are still very nervous doing, so things like going to the movies and going to the gym, these areas have really not picked up yet.
The other thing I have some concern about is government stimulus. So a lot of Americans right now are getting checks in the mail for up to $1,400 per person, and a lot of these checks are being spent. And that's been great for consumption. But once this round of stimulus is over and if we don't get another round of checks being mailed out, I do think we could see a bit of a slide in consumer spending. And then, of course, we can't ignore the COVID variants and the concern as to whether the vaccinations can keep up with the spread of the variants. And actually, looking at very recent data from just the past week, we have seen a tick down in confidence in terms of people's comfort going out in public and eating in restaurants. So that can certainly be a risk.
Now, we do have positives that are good for consumer spending. The vaccinations are being rolled out quite quickly in the US. Consumer confidence has been rising. And most importantly, we have this massive pent-up savings that people have put aside during the pandemic, and they are saying that they're wanting to spend at least a portion of those savings once things re-open. So those are the positive signs. I'd say overall, though, it's still kind of a mixed bag.
- So given what we know with retail trends and certainly the vaccination rollout, how do you invest in this type of environment?
- Well, it is a bit of a tricky environment to invest in when it comes to the consumer sector. And that's because a lot of the companies in the sectors we just talked about have already rallied pretty significantly and are trading higher than their pre-COVID levels, and in some cases at all-time highs. And so at TDAM, the approach we take is we continue to focus on the high-quality companies that we think have good long-term growth opportunities.
So we like the restaurant space for the reopening trade. We own McDonald's and Starbucks because we think they have good long-term growth opportunities even beyond the reopening. In apparel, we like Aritzia and TJX and off-price. But we still also own some of those companies that have been COVID winners that we think are going to continue to win in the long term. And those companies would include Home Depot and Amazon.
- Anita, once again, thank you very much for your insights. And we hope to bring you back again soon.
- OK. Thanks, Tony.
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