Retail Sales Growth Bodes Well for Consumer Goods and Packaging

The pace of growth in total U.S. retail sales continues to accelerate gradually, and this trend bodes well for the medium-term demand for many types of plastics consumer goods and packaging.

After hitting a cyclical low of 1.3 percent growth at the very end of 2015, the rate of expansion in retail sales climbed to 2.9 percent in 2016, according to data from the Census Bureau. Through the first four months of this year, the pace of growth in total sales has accelerated to a rate of 3.5 percent.

My forecast for this year calls for a gradual acceleration in the trend to continue. For this year as a whole, total U.S. retail sales will expand 4.5 percent. This pace is just a little above the long-term average of 4 percent in this data, and this pace of expansion should correspond with a 3 percent increase in the total U.S. output of plastics products this year.

One feature of the Census Bureau's data on retail sales that makes it particularly useful for plastics industry managers and analysts is that it is broken down into a number of categories. This breakdown provides interesting insight into trends and changes in consumer spending patterns.

For a few of these categories, the bulk of their receipts are not a major factor in the demand for plastics products or packaging materials (for example, gasoline stations). But many of them are, so I have picked out a few that represent large end-markets of interest to plastics processors.

The category that has consistently grown the fastest in recent years has been nonstore retailers. This category includes online establishments such as Amazon. This category has been growing by double-digit rates for several years, and it now accounts for 11 percent of all retail sales in terms of dollar volume. I expect this category to remain a growth leader for the foreseeable future.

As this category expands and develops, it will create rising demand for plastics shipping products. In the past, products such as foam peanuts and bubble wrap have dominated this category, and these products will remain part of the mix. But I believe that the use of more durable, reusable and specialized shipping containers will increase. For instance, the military already makes extensive use of Pelican cases for shipping, and there are likely to be many other civilian products that will increasingly get shipped in this type of container.

The shift to online retailing will also affect the shapes and sizes of many of the actual products that are shipped. For an online store, shelf appeal is less relevant. Products will that are easy to store in both warehouses and shipping containers, and packages that are handled by robots will become more prevalent. These products will also need to be labeled for easy scanning and tracking.

Not surprisingly, the rapid growth in online shopping is having a negative effect on sales at department stores. Sales at these establishments are down over 5 percent so far this year, and the downtrend is gaining momentum. Long-time icons such as Sears and J.C. Penney Co. are on the brink of extinction, and most of the other major nameplates are in decline. Shelf appeal was important in the old days as shoppers strolled down aisles browsing products at eye level while being spritzed with perfume. Nowadays, the preferred shopping experience is in a warehouse with aisles that are at least 20 feet high.

Other categories of retail establishments that are suffering negative growth through the first four months of 2017 are: sporting goods/hobby stores (down 4 percent); electronics and appliance stores (down 3 percent); and clothing stores (down 1 percent). All of these categories are feeling the pressure from Amazon. Ironically, there is some anecdotal evidence indicating that small bookstores are making a comeback.

One category that is not under pressure from online retailers is sales at building material and garden equipment and supplies dealers (for example, Home Depot). For the year to date, sales in these establishments are up 6 percent. These stores offer a level of speed, convenience and expertise that cannot be matched by online sellers. Do-it-yourselfers will often research the products they want online, but then they will go to the warehouse store so they can purchase it immediately and get some advice from an expert. The increase in this category is also evidence that the recovery in residential construction and remodeling sector is gaining momentum, which is good news for manufacturers of plastics building materials and five-gallon buckets.

The final types of stores worth mentioning are the two categories that first come to mind when you think of packaged goods: grocery stores and health/personal care stores. Total receipts for grocery stores are up 1.5 percent this year, while sales at health and personal care stores are down by about 1 percent. Based on these trends, I would not expect much of a change in the recent trend for plastics packaging products. The forecast calls for continued growth in the range of 1 to 2 percent for these products for the foreseeable future.