Major U.S. Retailers Dampen Hopes for 2023 Holiday Seasons Spending: Examining Industrial Leases from Four U.S. Retail Giants

SKIP AHEAD TO

• Black Friday Outperforms Expectations Despite Mixed Signals in Overall Consumer Confidence and Spending Data
• Nation’s Largest Retailers Struck a Muted Tone on Holiday Season Expectations in 3Q Earnings Calls
• 2023 Yielded a Dip in Average Industrial Transaction Size in CompStak Data Among These Top Retailers
• The Los Angeles-Orange County-Inland Empire Market Ranked Highest for Most Valuable Industrial Leases from These Retailers Since 2020
• What’s Ahead for these Industrial Occupiers: Tracking Volume of Industrial Lease Expirations from Above Retailers

As of today, we have now navigated through Black Friday, Cyber Monday, Giving Tuesday, and even Green Monday this week. With just 17 days remaining in 2023, we’re swiftly approaching the end of the year. This week holds significance as it likely represents the final opportunity to make purchases with the expectation of free shipping and delivery by December 25. Furthermore, and with just a touch more importance, this week also featured the last meeting of the Federal Open Markets Committee that will happen in 2023. The decision made yesterday to keep rates steady, along with the indication that rate cuts may be considered in 2024, was likely influenced, at least in part, by recent developments in retail spending and commercial real estate. In this week’s blog, CompStak evaluates trends in retail spending, expectations for the holiday season and third quarter earnings data from major retailers including Target, Walmart, Amazon and Home Depot and trends in CompStak’s industrial lease transaction data from those major retailers and industrial occupiers. 

Black Friday Outperforms Expectations Despite Mixed Signals in Overall Consumer Confidence and Spending Data

The holiday season is well underway with market watchers, retailers and logistics managers eager to understand how consumers will spend in the third consecutive season during inflation. The consumer has remained surprisingly strong since inflation began rising in mid-2021. However, now after 11 total interest rate increases since March 2022 and inflation cooling, there are some signs the consumer is finally pulling back. What do recent statistics tell us?

Retail spending data is notably not adjusted for inflation making understanding spending changes somewhat challenging. According to the most recent data in October, spending on retail trade as well as food services and drinking places both remain up year over year, increasing by 8.6% and 1.6%, respectively. However, spending on retail (excluding dining) has begun to slow. While it continues to show positive growth year over year, the growth rate has averaged 2.5% over the past 12 months, which it has dropped sharply from the 10.6% average growth rate over the prior 12 months. The year over year growth rate reached the pinnacle  in April 2021 at 46.6%.  This change in retail spending comes at the same time as e-commerce’s share of retail sales shows no signs of abating—this statistic peaked as a share of total retail sales in 2Q 2020 but remains elevated and has risen each of the past four quarters.

This change in retail spending, while it still shows growth, may be moderating as a result of declining consumer sentiment. The University of Michigan’s Consumer Sentiment Index dipped from 67.9 in September to 63.8 in October, after declining for the third consecutive month. It remains up from the COVID period low reached in June 2022, but is still down about 31.7 percentage points from consumer sentiment in October 2019.

Despite consumer spending showing some signs of wavering, preliminary data released on actual Black Friday spending surprised to the positive. Adobe Analytics, which tracks US online shopping, reported a record $9.8 billion in Black Friday sales, up 7.5% from $9.12 billion spent on Black Friday in 2022, and surpassing the forecast of $9.6 billion. The trends for the entire Cyber Week, encompassing spending from Thanksgiving through Cyber Monday, also registered a significant increase compared to last year, surging by 9.6% from the previous year’s total. The trend of continuous growth in total e-commerce spending on Black Friday has persisted each year since the onset of the pandemic. However, these figures are notably not adjusted for inflation, somewhat complicating an understanding of sales growth. Over the period from 2021 through 2023, the year-over-year increase in Core CPI surpassed the year-over-year growth in Black Friday spending. This contrasts with the scenario in 2020.

https://infogram.com/e-commerce-share-of-retail-sales_black-friday_121023-1hnq41073r17k23?live

Nation’s Largest Retailers Struck a Muted Tone on Holiday Season Expectations in 3Q Earnings Calls

Home Depot, Amazon, Target and Walmart were muted in their predictions and outlook for year-end holiday spending based on what they have seen in spending in 2023, particularly in the third quarter. These retailers, which all rank within the top ten for their share of total e-commerce sales according to a recent Insider Intelligence report, echoed this theme despite some reporting better year over year sales growth than others. Although Target and Home Depot both experienced a year-over-year decline in net sales during the third quarter, Walmart and Amazon, in contrast, reported sales growth for the same period. Notably, UPS, responsible for handling about  6% of the U.S. GDP, also reported diminished third-quarter earnings, partially due to decreased business contracts in the wake of protracted labor negotiations with the Teamsters labor union (which have since resolved). However, the company also substantially lowered its year-end forecast, citing a slowdown in the global economy. 

2023 Yielded a Dip in Average Industrial Transaction Size in CompStak Data Among These Top Retailers

Since 2017, Amazon’s industrial  transactions across 12 major U.S. markets  have averaged more than 416,000 square feet, while the average across transactions from Target, Home Depot and Walmart have averaged more than 483,000 square feet. In both cases, the average transaction size for deals completed in 2023 shows a dip from 2022’s peak during this period. While Amazon has been making headlines since Spring 2022 for its plans to slow expansion and shed some space, Walmart caught attention on their third quarters earnings call stating that they are are forging ahead with an eye for more warehouse space.

New York City, followed by the Los Angeles-Orange County-Inland Empire Market Ranked Highest for Most Valuable Industrial Leases from These Retailers Since 2020

Using CompStak’s data, the top five most valuable industrial lease transactions completed since April 2020 among each of these retailers were mapped, uncovering that New York City boasts the most deals within these parameters with two deals from Amazon including a 1 million-square-foot lease at 55-15 Grand Avenue, followed by the nation’s most robust industrial market, the Los Angeles – Orange County – Inland Empire market. Overall, the Inland Empire’s Jurupa Valley captured the top deals in this analysis for total lease value. These deals include  Home Depot’s 1.6 million-square-foot lease from Prologis at 4295 Jurupa Avenue  and Target’s lease of 1.2 million square feet in PGIM’s newly constructed 5400 El Rivino Road.

What’s Ahead for these Industrial Occupiers: Tracking Volume of Industrial Lease Expirations from Above Retailers

Overall, the next two years are a peak period for industrial lease expirations across major U.S. markets overall. However, 2030 is the peak year for Amazon industrial expirations, while 2032 ranks as the peak individual year for share of expirations from Target, Walmart and Home Depot, due to a slew of  ten-year leases signed in 2021 and 2022. The key distinction lies in the fact that, for major U.S. markets, irrespective of the tenant, the majority of leases expiring in the future were signed in 2021, with an average lease term of 66.6 months. In contrast, for Amazon, it was 2020 with an average lease term of 106.2 months, while for Target, Home Depot, and Walmart, it was 2021 with an average lease term of 99.5 months.