According to a piece in today's Wall Street Journal, the troubles in the subprime lending industry could spill over into retailers [subscription required] catering to the same low-income customers. The logic works like this: People who are struggling to pay their mortgages (as so many are, as evidenced by the troubles in the subprime industry) will have to cut back on their spending. Companies that could suffer include Wal-Mart Stores Inc. (NYSE: WMT), Sears Holdings Corp.'s (NASDAQ: SHLD) Kmart, and convenience stores, as well as other companies catering to lower income Americans such America's Car-Mart Inc. (NASDAQ: CRMT).
So what are some companies that investors could look to to avoid exposure to the subprime collapse and its repercussions? Basically, any company catering to an upscale clientele: Tiffany & Co. (NYSE: TIF), Coach Inc. (NYSE: COH), Inter Parfums Inc. (NASDAQ: IPAR), and similar stocks.
And, from that Wall Street Journal article, one of the best quotes I've seen in a long time:
"Having a credit card is kind of like being a millionaire," says Scott Davis, a 37-year-old facility maintenance worker who lives in Arlington, Texas. He says he and his wife, whose household income is $38,000 a year, had "seven or eight" credit cards they used to buy sporting goods, go on vacations and remodel their home.
Hmm...
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Reader Comments (Page 1 of 1)
4-02-2007 @ 2:35PM
henry mascatto said...
Anybody heard about b2Digital (BTOD) ?
4-02-2007 @ 3:17PM
Bernie mcfadden said...
This shows what the wall street journal knows about the less advantaged of America. The subprime problem will force more folks to shop Walmart nore than they did to get the most out of their dollar.
4-02-2007 @ 3:42PM
homelessclarence said...
Mr McFadden has it right.
The top 10% income earners are not affected.
But the 11 to 50% group prey on the subprime for their businesses, especially consumer finance and financial services (First Capital, Citicorp, etc) and jobs.
We'll see them at Wal-Mart occassionally, probably the last week of the month.
4-03-2007 @ 4:49AM
NDT said...
People who lose their homes to foreclosure are most likely on track to bankruptcy, after which, they will still have their jobs (most likely) and continue to live the lifestyle they were accustomed to, be it at Wal-Mart or Target or Macys, just in a smaller home they most likely will be renting (which will save them money).
I see very little effect in the retail sector, unless alot of their spending was via credit cards, which most likely will be off limits to them for a while.
4-03-2007 @ 6:57PM
NickP said...
Tough times will hardly help walmart. Media studies show they are only cheaper 30% of the time. The bottom feeders will have less to spend and gas will continue to take a greater part of their income. Smart ones will shop ads, clip coupons, check price comaparison web sites and clearances. There is a reason walmart's sales continue to flatten as more and more learn that they are hardly always the low price. The dumb ones will wind up at $ Stores and walmart.