In case you haven't noticed lately, times are tough for the American economy, and this volatility is more than likely going to carry over into the upcoming holiday shopping season, according to the Wall Street Journal (subscription required).
In an article today, the WSJ discusses the probability of a grim shopping season, reporting that economists are predicting that retailers are likely to see their lowest sales volumes for the past 17 years. These dark forecasts come from both research and consulting firms Deloitte LLP and TNS Retail Forward Inc., but the scary part is that these predictions were made before the most recent economic troubles, and the harsh reality of what lies ahead for retailers could prove to be even worse than these current predictions.
Let's take a second look at the major factors that are going to contribute to a weak holiday shopping season (granted the list could be made much longer, but let's just highlight the main factors for now):
High fuel prices, which have fallen over the past month but are still running at historically high levels
The mall itself, which is scheduled to reopen in the fall of 2009, is seeing a major renovation from an enclosed shopping center to a three-level, 550,000-square-foot open-air retail plaza linking to the Third Street Promenade.
Leading fashion specialty retailer Nordstrom has signed a letter of intent to open a three-level, 122,000-square-foot store in the fall of 2010. "The extraordinary appeal of Nordstrom is a great match for this exceptional market, and for what we believe will be a one-of-a-kind retail project two blocks from the beach in downtown Santa Monica," Randy Brant, executive vice president, real estate, for Macerich stated.
There were high hopes that Americans would run out and spend their tax rebate checks in a hurry, and that this would be just what the economy needed to get back on track. Well, it does seem that the checks were spent, but as weaker than expected June retail figures come in, it seems that it was a weak fix to a much bigger problem.
The program worked out pretty well in May, as retail sales grew 0.8% during the month, but we were sent back to reality today as June's figures showed that retails sales in the month grew at a measly 0.1%. This was lower than the 0.4% that Wall Street analysts were expecting. Since these figures typically get re-adjusted, it is not out of the question to assume that this figure could be even lower. May, for example, was originally reported to have had an increase of 1.0%, but that was lowered to 0.8%.
Once again, we have to assume that it is record high gasoline prices that are weighing on consumer's minds, as the biggest declines came in automobiles, furniture, electronics and building materials. Auto sales of course were the biggest drag on the retail numbers, and if you look at the figures while ignoring auto sales, then retail would have actually risen by 0.8%, but that is still under the 1.0% that analysts were predicting.
In tough financial times, certain food products and food preparation ideas seem to gain increasing favor with consumers. People try to find ways to prepare nutritious and interesting meals while gaining greater purchasing power from their hard-earned dollars.
Just the other day, some of us bloggers were engaged in a lively email chat regarding some of our tried-and-true strategies for stretching our grocery dollars. As you can guess, ramen noodles almost immediately took center stage. I was entertained with stories of the many ways that the slender pasta can be made quite appealing. For instance, if you take any brand of chunky salsa, cut it 50% with water, add a sliced hot dog and pour the heated mixture over the noodles, it's really a very delicious and satisfying meal.
As the discussion ebbed, I couldn't help but be amazed that no one had mentioned SPAM, by Hormel Foods Corp. (NYSE: HRL). Surely, I thought, these people must know about the illustrious history of SPAM! Could they ignore the fact that SPAM has carried literally millions of people though hard times since prior to World War II? Though there is probably a ratio of three SPAM jokes to every one SPAM recipe, the fact remains that Hormel's SPAM, in all its variations, still sells exceptionally well. It sells even better as times get tough, as indicated by a recent Associated Press overview.
For anybody who's been following the downfall of Sharper Image, there seems to be a pretty obvious lesson: when people are worrying about the rising cost of food and are scrimping to fill their gas tanks, high-priced doodads and assorted electronic gewgaws are the first things to go. The next things, of course, are luxury goods.
Saks Fifth Avenue (NYSE: SKS)and Neiman-Marcus, two of the bigger high-end retailers, reported massive quarterly profit gains in the end of 2007, but are now acknowledging that their gains have reduced considerably in 2008. Obviously, part of this is the standard post-Christmas drop, but there has also been a significant slowdown in year-to-year growth. In 2008, Saks is anticipating a minor increase over 2007's sales, but a slight decrease in gross margin.
Part of this is due to a reduction in expenditures by "aspirational shoppers," or people who can't really afford super-luxe items, but occasionally buy them anyway. What's particularly interesting, though, is that super-rich customers are also cutting back on their purchases, a trend that some analysts attribute to a contagious feeling of economic worry. In other words, the overall belief that the economy is approaching a recession is reducing spending even among people for whom the economic slowdown isn't a pressing concern. In light of this trend, Saks' stock price has dropped from almost $21 in the beginning of the year to under $13.
In this context, it looks like the next year will be tough for manufacturers and importers of high-end luxury items. After all, if the people who can actually pay top dollar are cutting back, what will happen to the people for whom luxuries are a splurge?
Shares in supermarket chain Safeway (NYSE:SWY) dropped 7% yesterday setting up investors with an interesting investment opportunity. The stock is off more than 25% from its' 52-week high. Investors were spooked about a slowdown in same store sales. I think investors need to take a second look at the company.
With an economic slowdown, many consumers will turn to home made food as opposed to eating out. This will be a big benefit to the supermarket. Another catalyst for the stock is that, unlike other food retailers like restaurants, they are able to pass on rising costs to the consumer. This will help keep their bottom line from dropping.
At these levels for investors looking for an inflation protected portfolio, you may want to take a look at Safeway.
Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer's fund has no positions in any stock mentioned as of 2/22/08.
A glut of Black Friday pricing promotions, more available shopping days and colder weather has assisted U.S. retailers in bringing back some shine to November same-store retail results. This is no surprise, but it helps the market take a deep breath after weak consumer confidence, a credit crunch that's still in progress and the lack of a "must have" holiday gift item were all worrying retailer watchers a few weeks ago right before Thanksgiving.
U.S. retailers have had a tough year this year (some worse than others) on the backs of spending pullbacks from many customer groups and tightening wallets. So far, estimates are concluding that November same-store sales results will rise 2.5% for November, ahead of the YTD rate of 2.2% through October of this year -- the slowest in over four years.
The poor earnings at companies like Sears Holdings (NASDAQ: SHLD) may be getting worse. A study released by America's Research Group indicates that shoppers will wait for another cut in retail goods toward the end of the month before making more purchases. "Half of America went shopping this weekend but they weren't very serious about it," Britt Beemer, founder and chairman of the group, told Reuters.
Details from the survey indicate that shoppers are simply sitting and waiting for deeper discounts, assuming that they will have to come.
The good news is that the consumer will be back to retail outlets, big and small. This means that Americans do not feel so pinched by current economic problems that they feel they cannot afford a nice holiday.
But the bad news is that they want retailers to bring down prices again to get them back into stores, and are willing to wait late in the season to see if deals improve.
There is an old saying that companies can lose money on each item and make it up on volume. That was not true when the saying was coined and it is no truer today. Margins at retailers are about to get pushed down again.
Douglas A. McIntyre is an editor at 247wallst.com.
There's bad news and good news on the Broadway strike front.
First the bad news: Unless there's a sudden change in the negotiating stance by the League of American Theatres and Producers or the striking Local 1 of International Alliance of Theatrical Stage Employees, the strike is not likely to be resolved for at least another two weeks, possibly three weeks, industry analysts estimate, and The Associated Press reported. (The strike has shut down more than 24 Broadway plays and musicals since November 10.)
The reason? Two weeks is the length of time it would probably take to exhaust both the owners'/producers' patience regarding losses and the unions' $4.1 million contingency fund. Of course, each strike/job action is unique, but if historical precedent is any indicator, labor and management begin to get serious about resolving a strike when each begins to incur unacceptable losses, Reuters reported.
Now the good news: Strike talks resumed Sunday, and with any luck the neon lights may be back on "On Broadway" in time for the pivotal Holiday/New Year's period. A settlement by that is pivotal because, historically, Broadway's biggest revenue week is December 26 - Jan. 6 -- the period from Christmas through just after New Year's Day, a vacation period when tourists from college students to senior citizens flock to the city. If the strike wipes out Christmas/New Year's week revenue, every Broadway show will suffer large losses, and some shows, including some with inadequate advance sales, may be forced to end their runs.
It's not as famous as Black Friday but it's a lot more peaceful than rushing to Wal-Mart (NYSE: WMT) at 5 a.m. to race other families to the TV section: Today is Cyber Monday, a big day for holiday sales at online stores.
According to Money, "Nearly 75 percent of online retailers will offer special promotions on the Monday after Thanksgiving, up from 43 percent two years ago, according to a survey from the National Retail Federation, which in 2005 dubbed the day Cyber Monday after online retailers noticed that Web site traffic spiked that day."
I like the idea of Cyber Monday as an alternative to Black Friday: You can avoid getting caught in the moment, spending more than you planned to as you are surrounded by other free-spenders. Crowded malls can lead to a certain mob mentality, with shoppers fueling each others' fiscal irresponsibility. If you find yourself susceptible to this, you may want to avoid going holiday shopping with friends, as much fun as it can be.
And if you're just plain sick of all the holiday shopping, you can always go see What Would Jesus Buy?, if it's playing in your area.
The one word that describes the retail world coming in to yesterday's "Black Friday" is nervousness. Would the consumer pull-back on this season's shopping and would retailers suffer a terrible fate? Many big name "box" stores have already dropped their forecasts for the season and earnings expectations were lowered. Not so fast.
The consumer came out in droves yesterday, and in some cases even Thanksgiving night. The great Mall of America in suburban Minneapolis was abuzz from the get-go. I know because I was there.
The Mall of America has enough parking to accommodate 14,000 cars. When I arrived at the Mall with my 17-year-old daughter and her two friends, I knew things were good when I was directed to park my car a mile from the Mall and hop the shuttle bus.That's a good start. Before I did park in the remote area, I dropped off my daughter and drove around the parking garage. I wanted to see where these shoppers came from. I counted license plates from 21 different states and many from Canada as they sported the Ontario license plates.
JCPenney (NYSE: JCP) said this morning that its net income in the third-quarter dropped 9% to $261 million, or $1.17 per share, the first profit decline in three quarters. Excluding a 14-cent tax credit, earnings totaled $1.03 per share, above analysts' expected $1.01 per share (though well below the retailer's earlier outlook of $1.28 per share). Last month, the company reduced its third-quarter outlook to a range of $1.00 to $1.04 per share (excluding the tax-credit item).
Sales fell 1.1% to $4.73 billion, as same-store sales dropped 3.5%. Gross margin was down 1.8 percentage points to 39.7%. During the period, the company slashed prices to reduce inventory. Calendar shifts also had a negative impact, as the 2006 third quarter had an extra week's worth of sales. Bloomberg quoted CEO Myron Ullman as noting, "We were disappointed to see sales weaken dramatically in September and October." Like many retailers that posted lackluster sales results last month, JCPenny cited unseasonably warm weather and rising fuel costs, which have crimped consumers.
TJX Cos. (NYSE: TJX) - parent of the T.J. Maxx, HomeGoods, and Marshalls chains of discount retailers - said this morning that third-quarter profit jumped 13% to $249.5 million, or 54 cents per share. This figure was a penny shy of analysts' consensus estimate of 55 cents.
Revenue rose 6% during the 3-month reporting period to $4.74 billion from $4.47 billion in the year-ago period. Same-store sales jumped 3%. This headline number also failed to meet Street expectations of $4.79 billion.
Company president/CEO Carol Meyrowitz was quoted by Dow Jones as noting that while warm fall weather curbed demand slightly, "as the weather cooled towards the end of the quarter, we saw a strong surge in sales and demand for cold weather apparel."
I always complain that holidays are a rip-off being perpetrated by corporate America -- families that can't afford it run up credit card debt so that their kids can have the same video games other kids have. The cessation of holidays would do wonders for our collective wallet -- maybe the Jehovah's Witnesses are onto something.
But here's a holiday that would actually be good to celebrate: November 23 -- National Buy Nothing Day.
As the website points out, there are a lot of great reasons to celebrate: buying less is good for the environment, good for your house (less clutter), and great for your wallet. Plus, some research suggests that owning lots of consumer goods just makes you want more. They even recommend celebrating with a ritual called the "Whirl-Mart": This activity has the advantage of being most likely to piss off security personnel. You and nine of your closest friends silently drive your shopping carts around in a long, inexplicable conga line without ever actually buying anything.
I can't wait for Buy Nothing Day, and I'm going to try to get everyone I know to participate.
It's super Thursday, when same-store sales from many of the nation's retailers hit the Street, and the outlook for the holiday-shopping season is looking less than cheerful.
Weakness in the housing sector, high prices at the pumps, and unseasonably warm weather kept consumers' wallets on a tight leash in October. Early estimates from the International Council of Shopping Centers/UBS indicate that overall U.S. same-store sales in October rose about 2%, missing analysts' previous growth target of 2.5%. Data from Thomson Financial indicates that 18 retailers have missed expectations, while 10 have exceeded.
Ken Perkins, president of research company RetailMetrics, told The New York Times that "Overall, the sales trend continues to slow . . . I think the consumer is certainly feeling the [economic] pressure heading into the holidays."
In case you haven't noticed lately, times are tough for the American economy, and this volatility is more than likely going to carry over into the upcoming holiday shopping season, according to the Wall Street Journal (subscription required).
In tough financial times, certain food products and food preparation ideas seem to gain increasing favor with consumers. People try to find ways to prepare nutritious and interesting meals while gaining greater purchasing power from their hard-earned dollars.
For anybody who's been following the downfall of Sharper Image, there seems to be a pretty obvious lesson: when people are worrying about the rising cost of food and are scrimping to fill their gas tanks, high-priced doodads and assorted electronic gewgaws are the first things to go. The next things, of course, are luxury goods. 
A glut of Black Friday pricing promotions, more available shopping days and colder weather has assisted U.S. retailers in bringing back some shine to November same-store retail results. This is no surprise, but it helps the market take a deep breath after weak consumer confidence, a credit crunch that's still in progress and the lack of a "must have" holiday gift item were all worrying retailer watchers a few weeks ago right before Thanksgiving.
It's not as famous as Black Friday but it's a lot more peaceful than rushing to 
The one word that describes the retail world coming in to yesterday's "Black Friday" is nervousness. Would the consumer pull-back on this season's shopping and would retailers suffer a terrible fate? Many big name "box" stores have already dropped their forecasts for the season and earnings expectations were lowered. Not so fast.
JCPenney
TJX Cos.
I always complain that holidays are a rip-off being perpetrated by corporate America -- families that can't afford it run up credit card debt so that their kids can have the same video games other kids have. The cessation of holidays would do wonders for our collective wallet -- maybe the Jehovah's Witnesses are onto something.
It's super Thursday, when same-store sales from many of the nation's retailers hit the Street, and the outlook for the holiday-shopping season is looking less than cheerful. 
Is the market always right?
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