With consumerism being such a huge driver of the economy, the lack of any real spending since the depths of the Great Recession has been an overall drag on any recovery. Overstretched and underemployed, many consumers felt the burden of high debt loads, burdensome mortgages and an uncertain job environment.

But now, it seems the linchpin of economic growth is finally making a comeback.

The latest retail sales report was a blockbuster. For investors, that could mean the time to bet on rebounding consumer spending is at hand. Just how flush are consumers feeling? Family Dollar Stores, Inc. (NYSE:FDO), which saw huge gains since the recession started by serving cash-strapped consumers, recently announced a retrenchment after seeing those same consumers bail for tonier retailers.

Best Growth In 18 Months

While the harsh winter muted spending in January and February, consumers more than made up for it in March. Overall, data provided by the Commerce Department showed that retail sales increased by 1.1% last month with receipts rising in nearly all categories. That gain was the largest increase in consumer spending since September 2012. At the same time, February's reported increase was raised to 0.7%, revised from 0.3%.

One of the key takeaways from the report was a big jump in sales at general merchandise stores. These retailers, which include stores like Bentonville, Ark.-based Wal-Mart Stores, Inc. (NYSE:WMT), saw a 1.9% increase for the month. That’s the highest single-month gain since March 2007.

The positive sales data has been joined by stable employment growth and improving weather. Analysts had blamed poor weather conditions for recent hiccups to rising retail sales. Mall foot traffic has increased, however, allowing analysts to bump up their expectations of GDP growth throughout the rest of the year.

All in all, consumers are once again showing an appetite to spend and thanks to improving household wealth, measures of confidence have increased. For March, consumers’ willingness to spend as measured by the University of Michigan Consumer Sentiment Index hit its highest level since July. And the National Retail Federation (NRF) expects U.S. retail sales to grow by nearly 4.1% this year. Those factors should help propel retail sector share prices that had sagged during the long winter and lend a measure of retail therapy to investors' portfolios.

Betting On The Sector

Given their recent underperformance, coupled with rising sales data, now could be a great chance to buy various retail stocks. A good way to do that could be through the SPDR S&P Retail ETF (NYSE:XRT). The ETF tracks 104 different retailers including drugstore chain Rite Aid (NYSE:RAD) and New York-based clothing store Ann Inc. (NYSE:ANN). Over the last 5 years, XRT has managed to produce an annual average return of over 30%. However, the fund is now sitting about 9% below its 52-week high. That dip could make it a strong buy for the rising sales data. Likewise, the low-cost Vanguard Consumer Discretionary ETF (NYSE:VCR) features plenty of retail muscle as well.

Investors could find some good values among individual retailers, as well.

Target Corp. (NYSE:TGT) could be one of them. After its widely publicized data-breach sent shares plummeting, TGT has worked hard to restore its image with its core, the “hip-mom” shopper. That includes integrating more technology into its shopping experience as well as carrying more natural and organic items. Investors have seemed to notice; TGT shares have moved off their breach lows but are still off their 52-week high. Menomonee Falls, Wis., competitor Kohl’s Corp. (NYSE:KSS) is also off its 52-week high.

Luxury retailers also continue to be huge winners as wealthy Americans never stopped spending during the recession. At the same time, the rebounding economy has created 300,000 new millionaires during 2013. High-end stores like Tiffany & Co. (NYSE:TIF) and Seattle-based Nordstrom, Inc. (NYSE:JWN) continue to see rising profits and sales.

Finally, all of this shopping is a big boon to the operators of malls. Leading Indianapolis-based shopping mall and outlet store owner Simon Property Group, Inc. (NYSE:SPG) is up 10% this year. Many leases in malls have kickers that are tied to a store's sales so it stands to reason that SPG will only benefit further from increased foot traffic.

The Bottom Line

The buyer is back. With March retail sales hitting multiyear highs, the time for retailers to shine is now. For investors, languishing consumer stock holdings should see some retail therapy.

Related Articles
  1. Fundamental Analysis

    The 4 R's Of Investing In Retail

    In retail, successfully managing return on investment (ROI) and other financial indicators is the key to a healthy business.
  2. Fundamental Analysis

    Analyzing Retail Stocks

    To analyze retail stocks, investors need to be aware of the most common metrics used. Find out what they are.
  3. Professionals

    Do You Belong In Retail?

    Making a career in retail is one of the most challenging tasks in the investment industry. Find out if it's for you.
  4. Forex Education

    Retail FX Spreads: Do They Even Matter?

    Learn how retail forex spreads affect your ability to trade currencies.
  5. Entrepreneurship

    2 Key Tactics Retailers Use To Increase Sales

    Many companies use versioning and bundling to increase sales. These strategies can offer value to consumers, but they also mean higher costs.
  6. Options & Futures

    Hedge Funds Go Retail

    Find out how average investors are breaking into what was once reserved for the ultra rich.
  7. Investing

    The ABCs of Bond ETF Distributions

    How do bond exchange traded fund (ETF) distributions work? It’s a question I get a lot. First, let’s explain what we mean by distributions.
  8. Investing Basics

    Top Tips for Diversifying with Exotic Currencies

    Is there an opportunity in exotic currencies right now, or are you safer sticking to the major ones?
  9. Mutual Funds & ETFs

    The 3 Biggest Mutual Fund Companies in the US

    Compare and contrast the rise of America's big three institutional asset managers: BlackRock Funds, The Vanguard Group and State Street Global Advisors.
  10. Professionals

    5 Top-Rated Funds for Your Retirement Portfolio

    Mutual funds are a good choice for emotional investors. Here are five popular funds to consider.
  1. Can mutual funds invest in IPOs?

    Mutual funds can invest in initial public offerings (IPOS). However, most mutual funds have bylaws that prevent them from ... Read Full Answer >>
  2. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
  3. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  4. What is the difference between passive and active asset management?

    Asset management utilizes two main investment strategies that can be used to generate returns: active asset management and ... Read Full Answer >>
  5. Is there a situation in which wash trading is legal?

    Wash trading, the intentional practice of manipulating a stock's activity level to deceive other investors, is not a legal ... Read Full Answer >>
  6. Are there leveraged ETFs that follow the retail sector?

    There are many exchange-traded funds (ETFs) that track the retail sector or elements of the retail sector, and some of those ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!