Morning Commentary
So has it begun? The long-predicted destruction of brick and mortar retailing for cyber options was beginning to look like an exaggeration, now it’s looking inevitable again.
This has been a brutal week for retailers, especially department stores marked by the massive hit to Wall Street darling Macy’s.
Now a string of earnings misses means a new model including the potential closing of iconic stores in New York and Chicago. The department store graveyard is packed with behemoths of yesteryear, but somehow certain names survived- until now. Nordstrom (JWM) seemed to follow in Macy's foot-steps when it reported earnings and revenues that missed estimates and followed it with a warning on its full year numbers. Definitely not what investors were shopping for, and the stock is down about 20% in early trading.
The issue isn’t that everyone will shop online tomorrow eschewing malls and other brick and mortar locations. But it’s about trends and the rate of growth, which clearly sees slower year over year growth for non-ecommerce (see table). Of course $4.6 to $4.9 trillion is a lot of money, and like any industry, there will be standouts that grab big chunks of that cash. There will be brick and mortar winners including names in the department store niche. This morning, JC Penny's (JCP) reported earnings with a quarterly loss that was less than estimated and beat on revenues. This was a bit choreographed as the company made positive comments earlier in the week regarding its results. The company's restructuring is working, however, it still losing money, and eps was a loss of -$0.47 but better than the estimate of -$0.55.
In the meantime, Wall Street continues to bid up Amazon (AMZN) while ignoring (at best) or punishing (at worst) other retail names. In the past year, AMZN shares are up 115% versus the retail exchange trade fund, XRT, which is down7%.
AMZN V XRT
The other problem for all retailers is demand and the state of the economy. The jump in jobs and wages might be too little, way too late, for this holiday season. The good news is valuations are attractive and expectations are very low. Moreover, we received good news from Kohl’s yesterday on earnings and the holiday season. The most important thing now is retailers have to show and prove performance as they will not get the benefit of the doubt.
Today’s Session
We got two more pieces of important data for the Fed to mull over. First, retail sales in the US were up 0.1% less than the 0.3% estimate. Auto sales actually declined. The overall data seems to indicate the US consumer is spending less than expected.
Next, we got more data from the Labor Department which reported that its producer price index (PPI) dropped again in October down 0.4%, after a decline of 0.5% in September. Core PPI, which excludes food, energy and trade services, fell 0.1% in October after declining 0.3% in September. Continued strength in the US dollar and weak global demand have put pressure on pricing and inflation, which is still below the Fed Reserve 2% target. So its remains 50-50 as to whether the Fed raises in December.
The market is mixed this morning, mainly down. But retailers are getting hit hard.
Comments |
The evolution of consumer marketing since the 1970's has been marked by a progressive shortening of the lines of distribution, creating new efficiencies on the one hand and eliminating millions of jobs on the other. Initially, the impact was greatest on all kinds of distributors and small retailers, and then on manufacturing as outsourcing tapped cheaper overseas labor markets. Now it's the turn of the big box retailers as companies like Amazon expand direct-to-consumer sales. The final phase may well be the takeover of manufacturing by the same mass merchandisers. The whole process is like a snake eating his own tail. The end result may well be a new kind of capitalist socialism dominated by a few powerful global companies. Unfortunately, the biggest victims are all those people who used to derive a living from now outdated marketing systems. Question is: when does a market stop being a market? The frightening answer is: when we no longer need people. Robots will never have to feed a family, send kids to college, or for that matter, invest in the companies on which a market depends. Which leads to the final question: Are we approaching the end of capitalism? Is China, in fact, the new paradigm? It's a question Adam Smith never had to consider. Dennis Howard on 11/13/2015 10:16:54 AM |
After thinking about it the reason for Amazon doing OK while the regular retail outlets are losing business is that Amazon is convenient and has good prices and delivery. In addition they have links to other suppliers that sell on Amazon. For the past three years most of my purchases are on Amazon. Rodman Johnson on 11/13/2015 10:23:20 AM |
Amazon has competitive prices on most products sold and that is appealing to the consumer. And, quick delivery :) William S. Brown on 11/13/2015 10:34:06 AM |
Is the demise of brick & mortar really so clear in the numbers? I don't think so for 2 reasons. Brick and mortar sales have increased every year for the past 5 years a cording to your numbers. Until they start decreasing, there is certainly doubt of their demise. It is always easy for the little guy to show big percentage change, but that does not mean he won't stay the little guy. Online is still well less than 10% of the traffic. And the numbers show that it has held flat at 23-23.5% of the incremental sales each year for the past 3 years. And it was 21% for the 2 years preceding, so no big trend that it is changing. Unless that changes, online will asymptotically approach 23.5% of the total sales over many, many years. That still leaves 75% in brick and mortar. Bob G on 11/13/2015 10:45:20 AM |
Amazon also offers customers the opportunity to evaluate the quality of the various products, which provides a unique information feedback. Al M. on 11/13/2015 11:52:42 AM |
Amazon's model has changed, they are no longer focusing on price, but rather on convenience and lead-time. Companies like jet.com have rushed to fill the void. China is complaining that "their" jobs are being outsourced to places like Bangladesh and Indonesia. While retail markets are more competitive than ever, the bottom line is still great companies must focus on where things are heading, rather than react to current conditions. The idea that manufacturing jobs can be "brought back" is naive, and ludicrous. kev on 11/13/2015 12:06:12 PM |
Shopping online is convenient and can be cheaper. But, even if I buy online I still try to see the product in one of the stores first. Often they wii match prices too. Norm Ray on 11/13/2015 1:32:34 PM |
For those who buy "stuff", Amazon will replace Walmart, Kmart and probably Target for those who use anything other than cash. For the cash only sector of society, the big boxes will probably reduce in size, inventory, etc. Notice the Kohl's results. As a percentage of total sales, cash sales may make the difference considering where they are on the retail food chain. I have spent very little this year at Amazon and it was only for "stuff". The buy on line and pick up at the store notion I have found to be a disaster. I tried it at Home Depot and Walmart. It proves to be much quicker than having the website indicate that an item is in inventory at a particular store when, in fact, we you get there, you find out how bad their inventory system is. But, to order on line and pick up at a store, is a nightmare. No one knows anything. You get that "you did what?" look; I'll get a manager. There is no time saved. The combination of on line and brick&mortar will continue when there is the need for "service in the sale". If I need shirts, I order from Joseph A Banks; if I need a suit, I go to the brick&mortar for the service of ensuring a proper fit. If you "used to derive an living from" anything, that is a statement in the past tense, so you have moved on, adapted. Jobs for life are a result of personal satisfaction with the situation. Lifers are celebrated in the end, not the beginning. And, yes, someday, skynet will gain self-awareness and we will all perish. Jerald Lenz on 11/13/2015 3:17:03 PM |
I thought a big portion of Amazon's earnings were from their cloud based business....Hey Charles...did I not hear you say that on Fox Business... Bonnie on 11/20/2015 5:30:46 PM |
Tweet |
3/28/2024 1:39 PM | Fruitful Quarter |
3/28/2024 9:50 AM | LISTEN TO THE MARKET |
3/27/2024 1:40 PM | Mostly Higher |
3/27/2024 9:32 AM | U-TURN? |
3/26/2024 1:08 PM | Everything Is Up |
3/26/2024 9:42 AM | TAPPED OUT (I HOPE YOU AT LEAST GOT A T-SHIRT) |
3/25/2024 1:33 PM | Not A Mutiny |
3/25/2024 9:35 AM | STAYING THE COURSE…BEYOND TECH |
3/22/2024 12:56 PM | Toll on Americans |
3/22/2024 9:38 AM | A TAD TIRED |
3/21/2024 1:55 PM | Building on Gains |
3/21/2024 9:30 AM | A COMFORTING FED |
3/20/2024 1:33 PM | Pivotal Moment |
3/20/2024 10:00 AM | HERE COMES THE FED |
3/19/2024 1:33 PM | Picking Up Steam |
3/19/2024 9:35 AM | RUMBLINGS IN THE BOND MARKET |
3/18/2024 1:48 PM | Mag 7 is Back |
3/18/2024 9:39 AM | THE PARTY IN SAN JOSE WILL BE LIT |
3/15/2024 1:38 PM | Realtors Settle |
3/15/2024 9:33 AM | AN UNEASY PAUSE |
3/14/2024 1:43 PM | Sticky Inflation |
3/14/2024 9:48 AM | GOING TO A GO-GO |
3/13/2024 2:16 PM | Taking a Breather |
3/13/2024 9:51 AM | ALL SO EPIC |
3/12/2024 1:42 PM | Marching Higher |
More commentary archives |
Home |
Products & Services |
Education |
In The Media |
Help |
About Us |
Disclaimer | Privacy Policy | Terms of Use | All Rights Reserved.
|