Q4-2023: Marketplaces Industry Quarterly Report

Marketplaces Industry Report

Q4-2023

Improving economic conditions and consumer resilience helped lift key performance metrics in the U.S. Marketplaces Industry in a year that many predicted would see a recession. Strong spending during the holiday season pushed retail and food services sales higher in Q4-2023 and year-over-year growth for the quarter accelerated to the highest level since Q1-2023. Overall, both the retail and food services sectors added a healthy number of jobs in 2023, though the pace of increase was slowest in Q4. Marketplace operational performance also continued to improve year over year with further advancements in base rent that pushed NOI higher. The year end also saw consumer credit card debt jumping again, while hourly wage growth and the personal savings rate moderated. Scroll through ICSC’s Q4-2023 Report in full, or click to the individual sections using the navigation below.

Quarterly Retail and Food Services Sales

Retail and Food Services Sales* Performance and Overview**

Non-Store Retailers

Food-and-Beverage Stores

General Merchandise Stores

Food Services and Drinking Places

U.S. Dollars (Millions)

Retail and Food Service Sales

Month-to-Month % Change

October

December

Q4-2023 Overall Sales

$1.55 Trillion

+1.0% Q-o-Q

Health and Personal Care Stores

Source: U.S. Census Bureau

U.S. Employment Situation

In Q4-2023, jobs in the retail sector rose 1,600 from the previous quarter, bringing job gains for 2023 to 128,900. December was the strongest month of the quarter as it saw the largest gains since February and more than made up for November job losses. The average number of retail jobs in Q4-2023 was 70,730 above Q4-2019 and up 105,100 compared to Q4-2022. The food services sector gained 31,700 jobs in Q4-2023, helping boost the total number of jobs added in 2023 to 308,400. The average number of food services jobs in Q4-2023 was 85,800 above Q4-2019 and 310,200 more than the same period a year ago. At the end of 2023, retail employment was up 103,300 from its February 2020 level, while the food services sector had nearly 1,000 more employees compared to that pre-pandemic point.

U.S. Employment (in Thousands)*

U.S. Shopping Center Performance Benchmark

* Seasonally adjusted

Source: Bureau of Labor Statistics

Retail Food Services and

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Retail

Food Services and Drinking Places

October

November

December

Source: NCREIF and ICSC Research

Consumer Engagement

Source: Surveys of Consumers, University of Michigan: Consumer Sentiment

Shares of Monthly Expenditures by Channel – Q4-2023

Shares of Total Monthly Expenditures at Physical Establishments (Open-Air + Freestanding + Malls)

Source: ICSC Research

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CONTENTS

Retail and food services sales (excluding motor vehicles, auto parts and gasoline) totaled $1.55 trillion in the fourth quarter of 2023, showing that inflation-wary consumers, aided by a slowdown in rising prices and a healthy labor market, were willing to spend during the holiday season. These Q4 gains helped propel total sales in 2023 to 4.9% over 2022. Compared to the previous quarter, Q4-2023 sales grew 1.0% and increased 4.5% over Q4-2022, higher than the average rate of inflation (3.2%) observed throughout the quarter. Though there was concern at the start of 2023 that a recession could be on the horizon for the U.S. economy and consumers would cut their spending, these year-end results indicate otherwise. In Q4-2023, health and personal care stores and food services and drinking places experienced the strongest year-over-year gains, while building materials and supply stores as well as furniture and home furnishings stores continued their slump amid higher interest rates and a slowdown in the housing market. Though electronics and appliance stores saw a decrease in Q4 sales from Q3, there was a surprising jump in year-over-year sales during Q4, growing by the largest percentage in nearly two years.

In 2023, base rent at marketplaces across the U.S. grew 6.2% over the prior year, an increase over the growth in the prior year, and 3.8% higher than base rent in 2019. All regions across the U.S. saw an increase in base rent, with the South and the West experiencing the biggest rent gains once again. Percentage rent also continued to climb in 2023 (+1.6%), but at a significantly slower pace than the previous two years that each saw double-digit growth. Net operating income extended its positive year-over-year growth streak to eleven straight quarters, rising 4.5% in 2023 over 2022, an increase slowed by expenses rising 9.3%. Shopping center occupancy rates at the end of 2023 were 92.0%, which is 0.1 percentage points (pp.) higher than a year ago and 2.3 pp. higher than the pandemic-era low reached in Q1-2021.

The shares of monthly expenditures on goods and services at physical stores and online that consumers allocated to shopping centers (open-air and malls) rose slightly in Q4-2023 from a year ago, while the share of dollars allocated to freestanding establishments increased by 1.1 percentage point (pp.). Furthermore, though the share of dollars allocated to online purchases was lower in Q4-2023 compared to Q4-2022 across all internet channels, the share allotted to online spending via brick-and-mortar retailers saw only a minor decrease, while the decline was larger for retailers predominantly selling online. Combined, these figures show that during the 2023 holiday season, a greater share of consumer expenditures went toward purchases at physical stores than in 2022 and traditional retailers continue to reap the rewards of having a multi-channel strategy.

6.2%

Online via brick-and-mortar retailer

5.2%

Online via Internet-focused retailer

34.5%

Freestanding Establishments

54.1%

Shopping Centers (Malls + Open-Air)

Consumer Sentiment

As was the case for most of 2023, consumer sentiment in Q4 was better than a year ago, though the improvement did not come without obstacles. In Q4-2023, sentiment decreased from the prior month in October and November, extending the streak of consecutive month-to-month declines to four months. However, in December, that trend came to an end as the sentiment index jumped to the second highest level of 2023, primarily on expected improvements for inflation, the outlook for business conditions, gains in the stock market and favorable news about the economy. At the end of 2023, the consumer sentiment index was roughly 39% higher than the historic low reached in June 2022, but remains well below the historic average.

Consumer Economic Sentiment

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Q4 Sales by Tenant Category

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Retail and Food Services Sales Performance

U.S. Employment Situation

U.S. Shopping Center Performance Benchmark

Consumer Engagement

Consumer Sentiment

Percent Change

Building Materials and Garden Equipment/Supplies Dealers

Index

Index of Consumer Sentiment

Year-Over-Year % Change in Consumer Sentiment

6.0%

Online via brick-and-mortar retailer

4.1%

Online via Internet-focused retailer

Freestanding Establishments

54.3%

Shopping Centers (Malls + Open-Air)

Shares of Monthly Expenditures by Channel – Q4-2022

As is usually the case during Q4, the share of consumers’ monthly expenditures allocated to goods at physical establishments was higher than at any point earlier in 2023, while the share that went to services was lower. Compared to the same quarter in past years, the shares of consumers’ monthly expenditures allocated to goods and services at physical establishments in Q4-2023 was very similar, except for Q4-2022, when the share for goods dipped to the lowest level ever observed during the holiday quarter. Though not a major change, 2023 continued to show consumer shift spending away from goods toward services. In 2023, consumers allocated an average 67.3% to goods and 32.7% to services. In 2018, these figures were 70.4% and 29.6%, respectively.

Source: ICSC Research

Drinking Places

Year-Over-Year Growth

+4.5% Y-o-Y

$513,805

$515,279

$518,164

The member organization for industry advancement, ICSC promotes and elevates the marketplaces and spaces where people shop, dine, work, play and gather as foundational and vital ingredients of communities and economies. ICSC produces experiences that create connections and catalyze deals; aggressively advocates to shape public policy; develops high-impact marketing and public relations that influence opinion; provides an enduring platform for professional success; and creates forward-thinking content with actionable insights – all of which drive industry innovation and growth. For more information, please visit www.ICSC.com.

12,285.90 12,286.70 12,291.60

October November December

15,613.30 15,570.40 15,613.60

November

% Change

80%

Visited a shopping center during the holiday season to shop and for other activities

74%

Made holiday purchases through multiple channels, spending in store and online

64%

Were willing to wait a longer amount of time for items ordered online to be delivered to receive free shipping

57%

Spent significantly more time during the 2023 holiday season looking for deals/promotions than in the past

53%

Planned shopping around specific promotional/large sales events such as Black Friday, Cyber Monday, Super Saturday

52%

Visited a retailer's website to browse and make purchases after shopping at the same retailer's physical store

Shares of U.S. holiday shoppers

Source: ICSC Research

Sources: U.S. Bureau of Labor Statistics, U.S. Bureau of Economic Analysis, New York Fed Consumer Credit Panel/Equifax

State of Consumer Finances

In Q4-2023, credit card debt rose 14.5% year over year to just over $1.1 trillion, which was $50 billion more than in Q3, and this was also the seventh consecutive quarter that total credit card balances rose double digits year over year. While this may demonstrate a resiliency among consumers and their willingness to spend, it could also mean they are increasingly relying on credit to cover everyday expenses, especially since the rapid rise comes at the same time growth in hourly wages moderated and the personal savings rate dipped to the lowest level of 2023. As total credit card debt was rising, so too was the rate of newly delinquent credit card balances. About 8.5% of credit card balances transitioned into delinquency in Q4-2023, which is up from 8.0% in Q3 and 5.9% a year earlier. Despite a healthy labor market, slowing inflation and other positive economic indicators, the state of consumer finances is something to monitor amidst these signs of increased financial stress.

Consumer Credit Card Debt

Hourly Wage Growth (YoY)

$ Billions

Percent (%)

Personal Savings Rate

Connect.

Clothing and Clothing Access. Stores

Furniture and Home Furnishings Stores

Sporting Goods, Hobby, Musical Instrument, and Book Stores

Electronics and Appliance Stores

State of Consumer Finances

* Seasonally adjusted ** Excluding motor vehicles, auto parts and gasoline

32.0%

4.3%

3.7%

$817

$787

$887

$1,129

35.6%

October November December