Bloomberg News reports that vacancies are rising fast. It notes that the average vacancy rate at neighborhood and community malls rose to 8.2%, up from 7.3% in 2007 and the highest level since 1995. And at regional and super-regional malls, vacancies increased to 6.3%, up from 5.6 % in 2007.
Sam Chandan, chief economist of research firm, Reis Inc., told Bloomberg that the amount of retail space being abandoned, "consistent with store closures, is at its highest level in almost 28 years." What's going on? Retailers --such as Linens 'n Things, Sharper Image, Lillian Vernon, Bombay and Levitz Furniture -- have filed for bankruptcy.
Why so many bankruptcies? It could be that with housing prices down 15% and 3 million mortgages in foreclosure people can't borrow the money they formerly used to purchase the goods that these malls sell. With consumer demand dropping and vacancies on the rise, it's surprising that rents are increasing at all.
This post is part of my series featuring established companies and the smaller, more aggressive or innovative rivals that may eventually succeed them.
San Francisco-based Gap Inc. (NYSE: GPS) has seen its fair share of hits or misses. The original Gap Stores was an overwhelming success in the 1980s and 1990s, but ran into the proverbial wall as the century was ending. The Gap missed the fashion changes and has re-tooled and re-engineered itself more than Joan Rivers! The concept has never been quite the same or attained its cache in the minds of discerning consumers. Other concepts within the Gap system have fared better, such as the Banana Republic, and Old Navy still remains popular in the deep discount segment.
Zara offers a fresh approach to fashion with a range of price points appealing to all levels of consumers. Zara is based in Spain and is part of the huge distribution company Inditex, which trades on the Spanish exchange. Zara is just beginning to make some serious inroads into the United States. With only 154 stores in the U.S., Zara has the room to five-fold its base within the next decade. The Zara concept has over 1,400 stores spread out over 50 countries, with plans to double that base. The U.S. is fertile ground for Zara as the international cache appeals to American consumers.
Zara is a vertically integrated concept. From designing men's, women's and children's fashions to manufacturing to distribution, Zara controls the entire process. The stores are all company-owned, to complete the vertical integration. Zara has captured the cache that the Gap Stores once had. Zara's appeal ranges from casual wear to business attire, while maintaining reasonable price points.
European business confidence declined more than forecast, the European Commission announced Friday -- an indication slowing euro-zone economy and rising inflation are beginning to lower business executives' expectations for the immediate quarters ahead.
The EC's sentiment index fell to 94.9 in May from 97.6 in April. It was the index's lowest reading since May 2005, Bloomberg News reported Friday.
Europe's major stock markets closed mixed Friday on the news. London's FTSE gained 11.70 points to 5529.90, Germany's DAX decline 37.69 to 6,421.91, and France's CAC 40 dropped 28.87 to 4,397.32.
Europe's execs: in defensive mode
London-based economist Mark Chandler told BloggingStocks that the slowdown in the United States, record oil prices, and rising inflation on the continent have but many of Europe's executives in defensive mode.
"Maybe the biggest concern is the impact of the slowdown in America and its affect on trade. Executives here are really concerned about a possible deeper U.S. recession dragging Europe lower. Their concern is well-rooted, because there's just not enough Asia demand to compensate," Chandler said. "Oil prices hitting $140 are another negative. It's not going to hurt the U.K. as much, but Europe could really be hurt by consumers cutting back spending on retail goods.
Some people waiting for their economic stimulus checks may be in for a shock.
According to USA Today, about $2 billion in payments from 1.8 million checks are being confiscated from people who owe child support, student loans and back taxes. Taxpayers get letters from the government explaining why their bank accounts are not being stimulated and so far few have complained, according to a Treasury Department official quoted by the newspaper.
I am all for making sure that children get the financial support they deserve. People also should not be able to dodge student loan payments or tax bills. The government, though, cannot impose a one-size-fits-all solution. For instance, what if someone is laid off and is already behind in their bills? The economic stimulus is supposed to help people in need, right?
Though the economic stimulus checks have helped boost retail sales, investors should keep their expectations in check. Many of the people I know are using their stimulus checks to pay bills, not buy big-screen televisions. A good portion of my stimulus is going right back to Uncle Sam for taxes I need to pay for being self-employed. That's another rant for another time.
The U.S.'s recent economic doldrums, combined with a 4-year-plus economic expansion that produced less-than-optimal-results in several statistical categories, has caused investors' recollection of robust economic times to fade from memory.
For a refresher, albeit not an ideal case study, regarding what a robust economy looks like, consider China's economy: China's retail sales surged 21.6% in May compared to a year ago, Bloomberg News reported Friday, a rate seven times faster than May retail sales growth in the United States.
Retail sales increased to 870.4 billion yuan or $126 billion in May after rising 22% in April, on strong auto sales and building material purchases, Bloomberg News reported Friday.
The dollar rose more than 1.4 cents against the world's other, major currencies Thursday -- its third large gain in four days -- after traders calculated that better-than-expected May retail sales will prompt the U.S. Federal Reserve to increase interest rates soon, possibly by late summer.
The dollar strengthened 1.4 cents to $1.5400 versus the euro, 1.7 cents to $1.9444 versus the British pound and about 1 yen to 107.92 versus Japan's yen on Thursday at mid-day.
Currency trader Andrew Resnick told BloggingStocks Thursday the surprisingly upbeat May retail sales report has not made him a dollar bull, but he's inching closer to it. "It's tough to form a meaningful conclusion with just one data point, but retail sales did take the dollar bears by surprise," Resnick said. "Most were expecting a sort of neutral number, but the May number was not neutral. If anything, it suggests the consumer, while cutting back, has not disappeared from the stage completely."
Still, the favorable May retail sales report was not enough to push Resnick decisively into the dollar bull camp, Fed rate increase this summer or not, and he remains flat, with no open currency positions presently. "We've been led down this dollar recovery road too many times, so for the sake of avoiding a red screen [trading losses], I'm flat," Resnick said. "What's that old saying? 'fool me once, shame on you, fool me twice, shame on me.' "
Gosh, from the recent retail report, you'd think the economy is back on track. But, of course, you'd be wrong.
Retail sales in the U.S. rose twice as much as forecast in May. Twice as much. Sales climbed 1%, and as Bloomberg says, it was the most since November, and it followed a 0.4% gain in April. Excluding gasoline, purchases increased 0.8% last month. For the quarter, though, spending may grow at an annual rate of 0.8%, the weakest since the first quarter of 1995.
So what happened in May? Americans used their tax rebates checks of course. All those who criticized the government's stimulus plan, saying the money would not be spent on discretionary purchases were wrong. Consumers spent the money at electronics and department stores, at least the portion that was left after filling up the gas tank at $4 a gallon. Don't forget the Federal Reserve's successive rate cuts. Those could have had something with the increase in retail sales too.
Gasoline's 4-year rise and recent pop above the dreaded $4 per gallon level is having a predictable impact on small town America.
Large areas of the upper Great Plains, the South, and Southwest are being hit hard, due to a heavy dependence on generally low-gas-mileage pickup trucks, low incomes, and those aforementioned high fuel prices, The New York Times reported Monday.
The Times reported that several social phenomena present during the U.S.'s last oil shock are on the rise: gasoline thefts, people running out of gas, and substantial reductions in consumer retail shopping to allocate more money needed to meet higher fuel costs, among other consequences.
The Wall Street Journal reports that BJ's Wholesale Club (NYSE: BJ) reported a 26% rise in net income. Its earnings of 29 cents a share beat analysts' expectations by a penny. And as consumers go on their crash recession diet, BJ's is likely to continue to exceed expectations. I would not be surprised if its stock keeps rising.
That's because results are growing faster than had been expected. The Journal reports that BJ's revenue climbed 12% to $2.31 billion. Earlier this month, BJ's said net sales increased 12% to $2.26 billion, as same-store sales rose 9.6%, with gasoline sales contributing 3.9 percentage points to the rise. And BJ's raised its EPS guidance by six cents to $2.04 to $2.14 a share. The mean estimate was $2.06 a share.
BJ's joins two beneficiaries of consumers' recession diet -- Wal-Mart Stores (NYSE: WMT) and TJX Co's (NYSE: TJX) -- caused by the rising price of gasoline coupled with flat income and collapsed housing values. After all, if you can't borrow against your house and your credit cards are maxed out, where are you going to turn to keep your family functioning?
The company said that better-than-expected results at its LOFT stores as well as lower inventories and better expense management overall contributed to the results. Yes, surprising investors is always good, but it's also always good to remain a little cautious with such news. The company itself warned about the rest of the year, leaving its full-year forecast unchanged.
Of course, the question is what's ahead for AnnTaylor. One answer already came today from the company when it said it would shelve a new store concept targeting baby boomers. But following the success of LOFT, the retailer is aggressively launching an outlet version of the brand. Is it smart? It certainly seems that in the current economic climate increasing lower-priced offerings would allow AnnTaylor to keep cash-strapped customers while offering them budget clothes in a familiar brand.
The Wall Street Journal is reporting about the novel theory that this recession may have fewer job cuts than those in the past. The paper says that "in past recessions, job losses have eventually gotten much more severe, marked by nationwide cuts reaching 300,000 or more per month. This time -- and these are dangerous words -- maybe it is different."
The argument here is based on the fact that job growth has been slow recently meaning there is not "a lot of fat" to cut.
It is a specious argument which may make some people feel better for a few weeks. With car sales off 14% last month and home prices down by as much as 25% in some markets, this recession is beginning to look like a deep one. Huge layoffs have already begun at financial services companies. Retailers may be the next to dump employees, especially if sales are weak in April and May.
The next large round of layoffs is likely to happen in the airline industry. High fuel prices are causing tremendous losses. If several airlines merge, there will be cuts. If fuel prices stay high, there will be cuts.
As the recession deepens, it will consume industry after industry. Like dominoes dropping, the layoffs are sure to come.
What's a tell-tale sign of a recession, and conversely, an indicator investors/readers should monitor to spot when the recovery has started? Retail sales -- particularly at department stores.
Most retailers will report March 2008 same-store sales this week, and Wall Street is bracing for the worst. In January 2008 and February 2008, same-store sales declined at nearly every major department store, including JC Penney (NYSE: JCP), Macy's (NYSE: M), Kohl's (NYSE: KSS), Dillard's (NYSE: DDS) and Nordstrom (NYSE: JWN).
Further, investors should watch Nordstrom's same-store sales carefully. The reason? Upscale retailer Nordstrom is a type of quick-reference, or an economic-barometer-in-a-snapshot, of the depth of a recession. If retail sales decline at broader-demographic retailers for several consecutive months, that points to a recession. But if sales decline at upscale retailer Nordstrom, that's a sign that even those with higher incomes and substantial assets are cutting back, which is a bad sign for the economy.
Nordtstrom's customers include professionals, executives and business owners -- including people who make hiring decisions. If they're cutting back, that may indicate they will not be hiring in the period ahead, which is never good news for the economy. Invariably, it means the recession's end is not near.
In Q4 2007, Nordstrom's sales fell 4.4% and earnings per share fell for the first time in more than five years to 92 cents per share. If Nordstrom's same-store sales decline again in March, that's a sign of continued belt-tightening by upper-middle and upper-income adults, and a sign that an economic recovery is not near.
Wal-Mart (NYSE: WMT) has surprised some investors these past six months or so by putting up more than decent earnings results. After yesterday's huge rally, Wal-Mart has nudged up over $50 per share. At this level, the company's market cap has also just crossed over the $200 billion mark. But is the stock a buy here at $50 and a $200 billion cap and what are its near term prospects?
It has been hinted strongly that in this consumer-led slowdown that millions of Americans are "shopping down" on daily staples at Wal-Mart instead of going to pricier competitors. If this is a temporary phenomenon, Wal-Mart should see a good April 30th quarterly result with momentum building to the July 31st quarter.
Long term, however, Wal-Mart is more of a market performer than an out-performer. Consensus estimates for the fiscal year ending January 31, 2009 calls for revenue of $405 billion and EPS of $3.40 and for fiscal year 2010, revenues of $435 billion and EPS of $3.75. Barely 10% growth of earnings and less than 10% growth of revenues. With the stock trading at a 13 PE multiple of fiscal year 2009, many would say the shares are more than fairly valued. In a difficult market as we have experienced, Wal-Mart became a safe place to hide money. The shares are up 14% this year which is outstanding performance vis a vis the rest of the market.
Wal-Mart may trade up to the $53-55 level before the year is finished, but as I mentioned it is not the best long term story in the big box retail segment. If the economy improves in the second half of the year, consumers may begin to "shop up" again, which would leave Wal-Mart with its traditional shopping base. That base is not enough to propel strong same store sales which is the life blood of big box retailers.
Georges Yared write about great growth stocks today in Game On Investing
Best Buy Inc. (NYSE: BBY), the consumer electronics retailer whose shares have slumped more than 12% this year, confirmed Wall Street's growing fears about consumer spending and cut its earnings outlook.
The Richfield, MN company expects fiscal 2008 earnings of $3.05 to $3.10, down from previous guidance of $3.10 to $3.20. Analysts expected profit of $3.17. Comparable stores sales are expected to rise 2.5 to 3%, below the company's previous forecast of a 4% increase. Fourth quarter same-store sales are expect to "decline modestly" in the fiscal fourth quarter, reflecting broader economy.
"Our December revenue results were in line with our expectations. Soft domestic customer traffic in January, coupled with our near-term outlook, now indicate that our fourth-quarter revenue will fall short of our planned targets," Brad Anderson, vice chairman and chief executive officer of Best Buy, said in a press release.
The company plans to open 130 to 160 new stores during its 2009 fiscal year, increasing its total retail square footage by about 10% to 51 million square feet. In addition, it plans "to bring more than 12,000 new retail management, sales and services positions to communities in its markets." Last year, rival Circuit City Stores Inc. (NYSE: CC) came under fire for firing 3,400 workers who were "paid well above the market-based salary range for their role."
Look for both Best Buy and Circuit City to discount like demons to lure consumers back into their stores. Maybe I'll pick up the plasma screen I've been eying.
Apple Inc. (NASDAQ: AAPL) shares are trading higher this morning after the Commerce Department reported this morning that retail sales rose 0.3% in January. The announcement surprised analysts, who were expecting a 0.3% decrease in sales. This could be good news for AAPL, as analysts are questioning whether the company can keep up its strong sales record after a disappointing revenue forecast last month. If you think that the company won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on AAPL.
After hitting a one-year low of $83.00 last February, the stock hit a one-year high of $202.96 in December. AAPL opened this morning at $126.74. So far today the stock has hit a low of $125.63 and a high of $127.85. As of 10:35, AAPL is trading at $126.90, up $2.04 (2.0%). The chart for AAPL looks bearish and steady, while S&P gives the stock a positive 4 STARS (out of 5) hold rating.
Bloomberg News reports that vacancies are rising fast. It notes that the average vacancy rate at neighborhood and community malls rose to 8.2%, up from 7.3% in 2007 and the highest level since 1995. And at regional and super-regional malls, vacancies increased to 6.3%, up from 5.6 % in 2007.
This post is part of 
Some people waiting for their economic stimulus checks may be in for a shock. 
The dollar rose more than 1.4 cents against the world's other, major currencies Thursday -- its third large gain in four days -- after traders calculated that better-than-expected May retail sales will prompt the U.S. Federal Reserve to increase interest rates soon, possibly by late summer. 
Gosh, from the recent retail report, you'd think the economy is back on track. But, of course, you'd be wrong.
The 
It's been brewing ever so slowly, but 
The Wall Street Journal is reporting about the novel theory that this recession may have fewer job cuts than those in the past. The paper 
What's a tell-tale sign of a recession, and conversely, an indicator investors/readers should monitor to spot when the recovery has started? Retail sales -- particularly at department stores. 
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Apple reports Monday -- buy AAPL before earnings?
