Wednesday, January 16, 2019

Retail Gloom

The shills were out in the media just before Halloween. They were barking up retail stocks. The spiel stated that with a strong economy and low unemployment, holiday sales in retail would soar. They threw out stats and charts with some claiming a 10% rise from the previous year.
Then, came Black Friday after Thanksgiving. Foot traffic was strong, but shoppers were comparing prices to online deals. Some stores posted higher sales from a year ago, however the real season was still to come. When that weekend ended, we had...
Cyber Monday
It set a record. Reports showed that for the first time, e-commerce(103m) surpassed retail outlets(102m). The writing was on the subway walls. As noted by Sebastian, shoppers can always save on taxes by purchasing online. This is an unfair advantage over retail. Congress gave the internet a chance to grow, but it is time for it to stand on its own merits.
In addition, many retail outlets are providing extra savings on products from their own online service. This is like shooting your own foot. Nevertheless, the old saying holds, "If you can't beat them, join them."
Bottom line: Holiday sales were up 6.7% to over $715 billion. This is up 3.7% from 2017.

From any perspective the costumed barkers in October appeared to be correct in their call, but their mask cannot hide the truth.
Although total sales were up for the season, most of the gains fell to online activity. Internet sales in 2017 was $106 billion. This year they rose over $122 billion. This is what makes up the sales increase for 2018. Sadly, retail sales fell 6.7% in the week before Christmas. Foot traffic was worse. It fell 10.4% and with good weather in most of the nation.
The following stock price comparisons from prior to the holiday season and into today, reveals sales results as reflected in the valuation of the company. Please note, this is only a sample.
Firm/symbol                                Date of stock price                                              Todays price
*Walmart(WMT)                             $105 in November                                               $94.
*Macy's(M)                                      $38 in November                                                 $25.
*Target(TGT)                                   $87 in October                                                     $69.
*Kohl's(KSS)                                    $82 in November                                                 $67.
*Bed, Bath, Beyond(BBBY)            $19 in October(Note large gap, too)                    $15
*Best Buy(BBY)                              $80 in September                                                 $56.
Amazon(AMZN)                              $2,050 in September      >had a low at $1310, now $1640.
In addition to the price action in Amazon, it is reported that they claim 55% of all online sales. This is not good for the industry as a whole.

As you can readily see the price action for all retail companies is downward. Not good. Bad news likes company and we have many retail firms announcing store closings. Leading the infamous group is Sears. The firm is in bankruptcy court. It does not look good for this iconic firm. J.C. Penny's is right behind Sears. Also giving pink slips is Chico's and Game Stop.

Then, there is warning announcements from Apple, FedEx, Samsung, and Barnes and Noble. An analyst just downgraded the Gap. With each passing day more negative news hits the airwaves. Not good. Then, least I forget, the government shutdown.

Gov't Shutdown

This effects so many aspects to our society that it makes one realize how much socialism constitutes a high percentage in our so-called free enterprise, capitalist system.
We have over 800,000 federal employees without a paycheck. This won't help retail or the economy.
Food stamps is now called SNAP and it distributes to 12% of the population who are now, hungry.
Some home loans will not be able to close. Small Business will not assist small business. How about auto loans? FAA to certify new airplanes? Contractors with ties to government projects? After you read this, other agencies will come to mind. Not good for the economy and not good to have so much of the economy attributed to government. President Trump has ordered all government workers back to work during this shutdown period. This will push gov't workers to form a union and even if that effort fails, serious backlash will rise up at some point.


In Europe, Germany is warning of a slower GDP for the quarter. If the leader is weak, the chain cannot be too strong. Keep in mind that the "yellow vest" protest in France is entering its 9th week with no end in sight. What started out as a protest to losing a fuel subsidy is now being directed at the French president. This action has hurt the GPD of the EU.
In the UK their government rejected Prime Minister May's Brexit plan. She will turn to the EU, but they will definitely not help her cause. It appears that Sebastian's prediction to doing nothing is correct. It also means like I said that the powers-to-be will let you vote, but never fulfill any chance that they do not accept. Democracy in name, but oligarchy in nature.
In China, many agencies have warned with many citing the tension with the US over trade. By the way, all those possible tariffs taxes won't be good for the price of retail products or the US consumer, although I am for tariffs to protect American industry. It appears that the trade talks have not reached any new developments.

New Problem

Returns! People return items and some cash in gift cards. The problem is growing for retail with storage of returned items. In the past most of it went to auctions, but even that outlet is at capacity. Keep in mind what was once considered a sale, is now no longer a sale. It is a loss under liabilities. Not good.
All in all Sebastian's call is looking good for a dangerous period in the US economy beginning around the Ides of March.