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What Shopping In A Recession Looks Like

AP

Retail sales results were almost universally in the red in March--but--retail stock prices were trading in the green. Why? Many on Wall Street were prepared for the weakest sales results in 13 years and that is indeed what we got on Friday.

There was a whole lot of short-covering happening in the retail space. Keep in mind though: An upward trend in investor stock buying (or short covering) isn't the same as an upward trend in consumer shopping. This consumer stock bounce may be shortlived.

This is what shopping during a recession looks like:

* Cheap sells: Wal-Mart sells to low income shoppers, Costco sells to mid-income shoppers.

* Inflation boosts results: be wary of gas inflation and food inflation pumping up results. This is a false gain. Gas added 2 percentage points to Costco's sales and pumped up Wal-Mart's gains.

* Department stores were hit badly: no one was left unscathed. Even high-end Saks saw a 2.9 percent sales decline. Why? Add in to the macro picture the fact that the March was unseasonably cold + the Easter holiday shopping period was shortened (earliest Easter in 95 years) = full priced Spring clothing didn't sell.

April is forecast to be better for discounters, including Target which took a -4.4 percent hit in March. Unfortunately, the outlook is still murky for the department stores JC Penney , Kohl's and Dillards which sell to the same mid market demographic (income of $60-70,000.)

Why didn't Target see the benefit of the trade down? JP Morgan's Chuck Grom says the 'trade down' effect that investors were hoping for just isn't happening. He says consumers aren't opting for cheaper places to shop, they're just not shopping or at the least, they're spending less.

Brean Associates' Eric Beder says it may be the 'end of the beginning' in terms of retail disappointments. Stores may get better in managing down expectations and in cutting back on inventory. They'll also gain an extra shopping day in April and benefit from an easier comparison year over year.

I know this all sounds like gibberish BUT here's why all these percentage gains and losses matter: Retailers are going to sell items but they are going to cut expenses in order to stay as profitable.

They're going to have to do that through layoffs, store closures and spending cutbacks. We may not have seen the worst of that yet. These cutbacks and this weakness will affect domestic growth.

Random thought: Explain to me how is selling enough flat-panel TVs and GPS units to continue to generate triple-digit comps in the electronics division?!

Questions? Comments? retaildetail@cnbc.com

Retail

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