3 Reasons To Be Upbeat About Retail This Summer

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Summer is set to sizzle.

So says the latest note — under that same title — from Cowen and Co.’s consumer team, which analyzed consumer momentum for the season.

“We acknowledge rising labor costs, promotional cadences in retail and restaurants but overall consumption trends should remain robust,” the team said in a report Wednesday. “In fact, we estimate that 3 million consumers received wage increases on Friday.”

Noting that Target Corp. and Adidas are among the group’s top picks, the Cowen team rounded up several reasons they’re upbeat about summer.

Weather

This variable is finally cooperating with retail.

After adverse weather conditions pounded footwear and apparel brands and retailers during the past three quarters, conditions are expected to improve throughout July and August, which should bode well for retail.

The report noted that Weather Trends International forecasted warmer temperatures in July and August followed by a muted fall and an early winter — trends that should create a positive setup, according to the analysts.

“The potential for a colder winter, along with a favorable spending backdrop, could create an improved setup at several brands/retailers that suffered from slower sales and higher inventory since Q4/15 including Under Armour, Nike, Hanesbrands Inc., Dick’s Sporting Goods, Columbia Sportswear and VF Corp.,” the team noted.

Wage Growth

Higher wages are producing higher spending for personal consumption, which carries an 80 percent correlation to income growth, as well as slightly higher savings rates, according to the report.

“We remain constructive on the U.S. consumer, in particular at the lower end,” Cowen and Co. said. “Wage growth data from the [Bureau of Labor Statistics] as well as the Atlanta Fed continues to point to a healthy lower-income consumer.”

Minimum-wage hikes have already happened in Maryland and Oregon, while several cities — including Chicago, Los Angeles and San Francisco — have also implemented a hike.

“While there were a handful of consumer and category specific headwinds in 2Q [higher gas prices, slower job growth, and adverse weather trends], growth in overall consumption, consumer credit and housing metrics still accelerated from 1Q, and we maintain a constructive view of the macro backdrop with potential for weather to be better aligned with seasonal trends,” the report said.

Back-To-School Spending

While the note doesn’t delve too deeply into the back-to-school spending period, it does acknowledge that a cooler September could stimulate back-to-school apparel sales.

Cooperative (or uncooperative) weather aside, back-to-school time is perhaps the only point in the year that parents and young adults are collectively compelled to spend hundreds — and even thousands — of dollars on shoes and clothes.

According to the National Retail Federation (NRF), back-to-school is the second-biggest spending event of the year, with each set of parents shelling out about $630 on back-to-school purchases in 2015.

Last year, total back-to-school footwear sales rose 4.8 percent, while revenues during the period were estimated to come in at $68 billion, according to the NRF.