U.S. Retail Sales Fell 0.6% in July: What the Drop Means for Supplier Receivables

The U.S. Census Bureau reported on August 14 that retail and food services sales fell 0.6% in July to $763.6 billion, which Reuters calculated as the first monthly decline in nine months and the largest in 14 months.

Why it matters: July’s 0.6% retail sales drop reaches supplier receivables before it reaches bankruptcy court, so re-check retail credit limits now.

Which retail categories drove the 0.6% July decline

Three categories drove the July drop, and the biggest of them fell because of a calendar shift rather than weaker demand.

• Nonstore retailers fell 2.2% after Amazon moved Prime Day into June, which pulled a full promotional cycle out of the July comparison.
• Motor vehicle and parts dealers fell 1.8% and gasoline stations fell 0.9%, the two categories most exposed to a single month of price movement.
• Clothing stores rose 1.9% on back-to-school buying and restaurants and bars rose 0.5%, so the weakness did not run across the whole sector.

Why the 0.4% control-group drop matters more than the 0.6% headline

The control group strips out autos, gasoline, building materials and food services, which is why economists treat it as the cleaner read on underlying demand.

• Core retail sales fell 0.4% in July against an economist consensus of a 0.3% gain, a miss of 0.7 percentage points.
• Sal Guatieri of BMO Capital Markets said the report “points to a material slowdown in real consumer spending growth in the third quarter.”
• TD Economics now tracks consumption at roughly a 2% annualized pace, against the 3.2% rate the second quarter recorded.

How a retail sales decline shows up in supplier receivables

Retail demand data matters to a supplier only where it turns into something measurable on the receivables ledger.

• Days sales outstanding on a retail account usually moves before order volume does, which makes a DSO trend the earliest warning in a supplier’s own ledger.
• July’s decline carries a margin of error of plus or minus 0.4%, and sales are still up 5.0% year over year, so this is slowing growth and not a contracting sector.
• Trade credit insurance is designed to cover nonpayment on a covered retail receivable, subject to credit limits, notification requirements, and the policy terms in place at the time of the loss.

What to do now

Re-examine retail exposure while the buyer is still paying and a limit is still available, rather than after a filing pushes you into creditor recovery options.

1. Pull a DSO trend by customer across your retail accounts and flag any buyer whose July payment broke from its six-month average.
2. Reconfirm the credit limits you carry on retail and consumer-goods buyers before fourth-quarter shipping commits you to a larger balance.
3. Read your policy’s past-due reporting and notification deadlines now, so a slow-paying retail account does not drift outside your reporting window.
4. Contact Securitas Global Risk Solutions to review whether your retail limits match the exposure you will carry into the fourth quarter.

Disclaimer:
This blog post is meant to be informative and provide helpful tips and insights into credit insurance policies. It is not meant to supersede any policy requirements. Please consult your credit insurance policy for all requirements including claim filing deadlines and required documentation.

Since 2004, Securitas Global Risk Solutions, LLC has helped clients develop trade credit and political risk transfer solutions. As an independent brokerage, Securitas is focused on developing comprehensive solutions that meet client needs, ensuring a complete understanding of policy wording and delivering excellent responsive service. If you want to understand how trade credit insurance can protect your business, contact Securitas Global Risk Solutions to speak with a specialist.