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The U.S. retail market had a bit of a rollercoaster start to 2025. February retail sales edged up a modest 0.2%, but that came after a steep downward revision for January, which now clocks in at a 1.2% decline. Economists were looking for a more robust bounce-back of about 0.6%, but consumer spending couldn’t quite match it.
For investors, this is a key question: what does this imply for retail-oriented ETFs? Because these ETFs follow the performance of retail stocks, they can take a hit from changes in consumer consumption. Let’s look at how recent retail data may affect these ETFs and what to expect next.
How Retail ETFs Are Reacting
Retail ETFs such as the SPDR S&P Retail ETF (NYSE:XRT) and VanEck Retail ETF (NASDAQ:RTH) provide investors with broad exposure to the industry. When consumers are spending more, these ETFs perform well. But when sales are weak, the effect can be uneven based on what is behind the numbers. In the past month, XRT has dipped as much as 13.93% and RTH, 7.42%.
February’s softer-than-expected growth might cause some short-term volatility, but not every sector of retail is suffering. Online shopping and health-related retail strength might see some ETFs perform better than others.
Here’s a closer examination:
XRT, an equal-weighted fund, might come under some pressure because it distributes investments among a broad spectrum of retailers, some of which are suffering.
RTH, which relies more heavily on the likes of Amazon and Walmart, might fare better with the continued e-commerce strength.
Vanguard Consumer Discretionary Index Fund ETF (NYSE:VCR), which is exposed to brick-and-mortar as well as online stores, may have mixed results based on how various retail categories perform.
Dissecting The Retail Sales Figures
Based on the most recent U.S. Census Bureau report, here’s how retail sales held up:
Not all categories fared poorly, however. Online stores experienced a 2.4% increase in sales, demonstrating ongoing demand for e-commerce.
Health and personal care stores reported a 1.7% increase.
Excluding auto sales and gasoline stations, retail sales actually increased 0.5%, higher than the expected 0.4%.
The control group measure, which removes more erratic sectors, increased 1%, a robust bounce back from January’s 1% fall.
A number of factors probably held down consumer spending.
While the disappointing top-line number is concerning, there are some silver linings in sight. The fact that online sales were strong indicates that e-commerce retailers continue to draw shoppers. That’s a plus for ETFs that have heavy exposure to e-commerce stocks.
What’s Next For Retail ETFs?
While retail sales missed the mark, sector-specific strength—particularly in e-commerce—may cushion the blow for some ETFs. Investors will want to watch inflation, interest rates, and overall consumer sentiment in the months ahead.
For those who want to ride out possible volatility, diversification within the retail space may be the way to go. Although broad retail ETFs may face some stress, those funds that have greater exposure to well-performing sub-sectors such as e-retail and medical products could be in better shape in the near term.
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