Key Points:
- September retail sales, excluding auto and gas, increased by 5.0% year-over-year, up from August’s +4.8%.
- September’s read was bolstered by the later Labor Day, which dragged back-to-school / college spending into the month. Post Labor Day, the pace of traffic slowed, dragging down the pace of sales.
- In terms of the high-end consumer, Louis Vuitton / Tiffany reported a slowdown in Q3 revenue growth for its US business; we see that across luxury, and believe it to be the result of higher interest rates and inflationary concerns, and the high negativity coming from mid-term advertising campaigns. All of this also weighed on later-month (and into October) retail activity more broadly.
- Reflective of a more dominant “thrifty K-shaped consumer,” Costco’s reported September US comp-sales increased a “smoking” +8.0%, excluding gas, up from last month’s +5.6%. Its high-income members have shifted more of their wallet towards Costco’s low prices and lower-priced gasoline.
- In addition to Costco, monthly outperformers in observed traffic include Sam’s Club, Target, Trader Joe’s, Five Below, Ross Stores, Nordstrom, Academy Sports, and Amazon.
Per the Census Bureau, September retail sales, excluding auto and gas, increased by 5.0% year-over-year*, up from August’s +4.8%. Outperforming store categories* include electronic & appliance stores (+9.4%), sporting goods, etc. (+9.6%), and non-store retailers (+8.2%). Excluding appliance stores, we estimate that the electronics stores figure increased +10.3%. All three retail categories are strong back-to-school (B2S) beneficiaries, which for this September’s read will have benefited from the Labor Day shift, which dragged B2S spending into the month. (As previously covered, this year’s back-to-school was very robust.) The B2S lift will have also bolstered the +5.0% figure, as well as the read for clothing stores (+5.0%) and general merchandise stores (+4.2%). Therefore, one should not conclude that underlying retail sales strengthened in September based on the Census’ report.
As shown in the chart, traffic after Labor Day broadly slowed. Over the past several years, we’ve typically seen a broad and macro “downshift” post back-to-school; the same is true of other seasons such as Christmas, spring season, Mother’s Day, etc.. As such, we’re not surprised by the post-Labor Day softening.
Per high-end luxury, based on our data and LVMH’s comments, we believe that its customer has paused a bit in light of higher interest rates and inflationary concerns. Additionally, there is the high negativity coming from mid-term advertising campaigns, which is likely to make any “sane” person fear that the world is coming to an end. We don’t believe that this has been a broad and sustained pullback because none of this week’s credit card and banking companies (JPM, Citi, BoA, etc.) signaled such in earnings results and comments. As such, it's more of a shift beneath the surface towards greater value and more vacations – see Delta’s results. (These banks serve prime+ households; i.e. their views are more to the top of the K.)
Reflective of a more dominant “thrifty K-shaped consumer,” Costco’s US comp-sales increased a “smoking” +8.0%, excluding gas, up from last month’s +5.6%. Its high-income members moved more of their spending towards Costco’s low prices and visited its pumps. Costco’s comp-gallons increased high-signal-digits in September, and we see no reason that Sam’s and BJ’s wouldn’t have experienced a similar lift. Combined, the three took around 100bps of “gallon share” during the month from the conventional convenience and gas (C&G) channel. That share loss adversely impacts C&G fuel profits (see our story here) and in-store food & merchandise sales (i.e. bad for CPG), and it diminishes traffic from adjacent limited-service like McDonald’s, Taco Bell, etc. See our recent presentation on the restaurant and distributor industry here, which previews Q3 and details September.
In addition to Costco, monthly outperformers in observed traffic (relative to others in their category) include Sam’s Club, Target, Trader Joe’s, Five Below, Ross Stores, Nordstrom, Academy Sports, and Amazon. As shown in the following chart, YoY traffic in September was less than August; that’s largely a more difficult comp (see the chart below). Academy’s deceleration largely reflects that September is largely after the B3S shopping season. On top of that, we believe the noted impacts on high-end luxury are also factors. Per the outperformers:
- Target’s strength – more marketing and Tarjay. (See our FQ2 story.)
- Five Below’s ongoing “exceptionalism” reflects the ongoing trading card and collectibles super-cycle.
- Nordstrom’s strength – K-shaped economy + disruption at Neiman + GLP-1 fostered wardrobe upgrades.
- Ross Stores’ strength – more marketing, selection, and cleaner / staffed stores. (See our FQ2 story.)
- Sam’s Club – Same story as Costco. (See our FQ2 story.)
- Trader Joe’s – Exceptional value private brand and perishables offering. (See our Kroger story.)
- Amazon – The trend at its large FCs and regional facilities did slow MoM; however, that’s solely due to the lapping of last year’s launch of same-day perishables. On a 2-year CAGR basis, growth accelerated (+400 bps MoM), which suggests ongoing market share capture in general merchandise and grocery.
What’s our outlook for the remainder of the year? Unsurprisingly, we expect a further increase in gas prices, inflation, and interest rates, more anxiety, and mid-term queasiness to yield a relatively softer October. Post the mid-terms and going into Black Friday and the holidays, we expect a consumption “release” yielding a very robust period (against what is a difficult 1- and 2-year comparison*). Unlike the past couple of years, Thanksgiving 2026 sits on a good calendar spot, as does Christmas (a Friday). Taken together, we see no reason at this time that Holiday-2026’s pace won’t match the last two years’ +4%. As to why we expect higher gas prices and interest rates in the weeks ahead? That was the takeaway from this week’s Annual for the National Association of Business Economics, which we attended. Happy to share more offline. Importantly, should that come to pass, our expectation for a +4% holiday still stands.
‘* We use the non-seasonally adjusted figures. Used goods stores also outperformed; that’s been the trend.
** The NRF had 2024 up +4.0%, and 2025, up +4.1%
