Retail trade is typically tied to the strength of personal income in the local area. Delaware is an exception.
Delaware is one of only five states with no sales tax, and the only state in its region without a sales tax. The sales tax among the states surrounding Delaware range from 6% (Maryland and Pennsylvania) to 7% (New Jersey). Not surprisingly, Delaware’s retail sales per capita are 26% above the nation as shoppers pour into the First State.
Yet, unlike following other recessions, Delaware retail trade has not rebounded strongly following the “Great Recession.” There are major structural changes affecting all areas of retail trade and the differential impact across retail sectors is staggering.
POST RECESSION PERFORMANCE: STILL LAGGING
There are three standard ways to measure activity in retail trade: employment, payroll, and sales. We first look at retail trade employment in Delaware between 2008 and 2013.
Unusually, during the five years since the depths of the 2008 recession retail trade employment has declined by nearly 5%, shedding about 2,500 positions. This parallels a 3% drop in retail trade jobs across the nation.
As Graph 1 clearly demonstrates, there were substantial differences among the major retail industries in Delaware with respect to the net change in jobs between 2008 and 2013. Gains in food and beverage stores, general merchandise and clothing were offset by employment losses in all the remaining retail industries, ranging from electronics and appliances to sporting goods, hobby, book and music stores. At the high end food and beverage stores staffing increased 8% while at the lower end furniture store employment dropped 29% and jobs at sporting goods, hobby, book and music stores plummeted 31%.
The net loss in jobs, of course, was accompanied by a net drop in annual payroll. Total payroll in Delaware retail trade fell almost 2% between 2008 and 2013. Adjusted for inflation of 5.5% over that same time period, the decline in real (inflation adjusted) total retail payroll was 7%. And the average pay per retail trade employee in Delaware went down almost 4% before inflation. Weak demand results in a buyer’s (employer’s) labor market.
The change in total payroll by major retail trade industry in Delaware roughly paralleled the net changes in employment. Payroll rose in food and beverage stores, general merchandise, and clothing. Yet the largest gains in payroll were registered in electronics and appliance stores and health and personal care stores as the average pay per employee rose about 10%. The biggest drops in payroll were recorded in furniture and sporting goods, hobby, book and music stores.
As retail sales data by industry is no longer available in Delaware, we must look to the national trends to see how sales revenue fared between 2008 and 2013. Across the U.S. retail sales tend to track the business cycle. So, total retail sales fell from the third quarter of 2008 and finally turned positive for the 2009 holiday season. Since that point total retail sales have risen a healthy 18%, unadjusted for inflation.
Two major structural changes have hit the retail trade industry and accelerated since 2008. First is the growing share of retail trade spending that is occurring through the Internet. This is drawing market share away from traditional “brick and mortar” retail centers. Second is a growing bifurcation in the household income distribution with the lower half of households being increasingly price sensitive. This has been a boon to the big box discount stores and the Internet has fueled this rush to the bottom on prices.
Each major retail industry has its own business pattern. Motor vehicle sales, for example, dropped three times further than total retail sales during the recession and recovered twice as fast. Sales in food and beverage stores, on the other hand, hardly dipped during the recession and have remained relatively steady during the five year period.
When one drills down into the major retail industries, the reasons and strategies behind these variations in performance emerge. This analysis is available in the latest DECON First Economic Brief which is available free to subscribers or can be purchased through the DECON First website.
Dr. John E. Stapleford, Principal
DECON First uses economics to strengthen Delaware business. This is accomplished by providing accurate, objective, and relevant analysis of the economy, coupled with best practice recommendations that deliver new customers. The detailed analysis for the Indicators above is found in the DECON First Quarterly Delaware Economic Review (www.deconfirst.com).
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