Retail Sales Seen Leveling Off as Record Holiday Season Ended

Many holiday shoppers heeded warnings about shipping delays, pushing a large share of the season’s usual gains to earlier in the year. The Commerce Department is scheduled to release its report Friday at 8:30 a.m. Eastern time.

Retail sales are adjusted for seasonal variations but not for inflation, so the advances of the past year are damped by historically high price increases. The consumer-price index, a primary measurement of inflation, rose 7% in December, the fastest pace since 1982.

Annual growth in retail sales for 2021 will likely be around 19%, a reflection of the torrent of consumer spending that has followed in the wake of depressed sales the prior year during the worst economic period of the Covid-19 pandemic. Retail businesses aren’t likely to see the same pace of growth this year, with consumer savings coming down from high levels, and the Omicron variant creating fresh disruption and keeping patrons away from restaurants and bars.

“In any normal year you don’t see sales go up by this much,” said Neil Saunders, managing director of GlobalData Retail, referring to 2021’s performance.

Because of a supply-chain crunch, some retailers might end up with extra products that they had hoped to sell over the holidays but didn’t receive in time, resulting in discounting, according to economists. Another factor is expected additional shifts in spending from goods to services once the pandemic finally eases. During the pandemic, consumers have spent more on goods while services spending has remained below pre-pandemic levels. In November, before the Omicron surge in the U.S., the balance had begun to shift back toward services, with goods spending rising 0.1% while services spending climbed 0.9%.

Several large retailers said this week that the Omicron surge and supply-chain disruptions crimped holiday sales. Lululemon Athletica Inc. and Abercrombie & Fitch Co. said their sales would be dented by the disruptions.

Lululemon Chief Executive Calvin McDonald said that the company started the holiday season in a strong position but that the Covid-19 surge limited staff availability, prompting the chain to reduce store hours in some places. Abercrombie Chief Executive Fran Horowitz said an unexpected shortfall of inventory in key categories because of port and transportation delays hurt sales.

“If we had the inventory on hand, we could have delivered sales within our previous range,” Ms. Horowitz said.

For Paula Humphrey, general manager of Don’s Garden Shop in Colorado Springs, Colo., supply-chain problems have been both a boon and a challenge. She said sales at the garden center have been “over the top” since the pandemic began, with many customers citing the desire to grow their own food to sidestep grocery shortages and inflated prices.

Shipping delays have caused her business, which her husband, Don Humphrey, founded more than four decades ago, to adapt. They have had difficulty procuring manufactured garden materials, such as flagstones and fountains, because of high demand and because their supplier of flagstones hasn’t been able to employ guest workers from Mexico, as it usually does.

“This year we’re getting inventory in just so we’ll have it,” Ms. Humphrey said. “Usually we would never order flagstones in January.”

Restaurants and bars have struggled to deal with the double whammy of depressed services spending and high inflation.

“My cost of cans and grain has gone up, so I’ve passed it along to the consumer,” said John Lincecum, co-founder of Turtle Swamp Brewing, a brewery and taproom in Boston’s Jamaica Plain neighborhood.

Mr. Lincecum, who has a doctorate in biochemistry and has years of experience applying for government research grants in his prior career as an amyotrophic lateral sclerosis researcher, kept the brewery open during the early stages of the pandemic with the help of Small Business Administration loans and grants.

While distribution deals with grocers including Whole Foods Market as well as restaurants and bars around Massachusetts have helped build his wholesaler business, he said he relies on cash flow from the taproom to pay regular business expenses.

“The ability to have that weekly, monthly cash flow to pay utilities and biweekly payroll is gone,” he said, as patrons shunned in-person eating and drinking because of the rise in Covid-19 cases.

Turtle Swamp recently instituted a vaccine mandate for customers, two weeks before Boston’s citywide mandate, but he said patrons are unlikely to return in strong numbers until the current wave of cases subsides a bit and the weather improves.

“The next six months will decide—there will be a wave of bankruptcies,” Mr. Lincecum said. “The little guys can’t keep it up.”

—Suzanne Kapner contributed to this article.

Write to Gabriel T. Rubin at [email protected]