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ABOUT THIS BLOG
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This blog will look at the winners and losers in the retail space. Who has the right strategy to capture consumer dollars? It also will look for trends in consumer spending and how that will impact the economy.
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The surprise in today’s grim holiday-sales numbers was Wal-Mart, which missed its mark and slashed its forecast, signaling that low-income shoppers have been harder hit than previously thought.
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AP Analysts say Wal-Mart's customers have been among the hardest hit by the economic crisis. |
“Discretionary spending is DOA — dead on arrival,” declared Howard Davidowitz, chairman of retail-consulting and investment-banking firm Davidowitz & Associates.
“You’ve got consumers with 101(k)s instead of 401(k)s. Exploding unemployment. Consumer bankruptcies exploding,” Davidowitz said. “You can’t have this wealth destruction and think it’s going to get fixed.”
Retailers’ same-store sales fell 0.9 percent in December, according to Thomson Reuters, compared with a gain of 0.5 percent a year earlier.
Wal-Mart [WMT
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] delivered the biggest surprise, reporting its same-store sales rose 1.7 percent last month, well shy of the 2.8-percent increase expected, and slashed its fourth-quarter earnings forecast.
Davidowitz said Wal-Mart’s customers have really taken the brunt of the economic pain.
“You gotta look at the weakness of the Wal-Mart customer,” Davidowitz said. “Twenty-percent of them don’t have bank accounts,” he said of the 150 million people who shop in Wal-Mart stores each week.
“And where is this unemployment coming from?” Davidowitz asked. “The Wal-Mart customer. Who are these people being pushed from full-time to part-time work? Wal-Mart customers. Who are the customers with subprime mortgages? Wal-Mart customers.”
The After-Christmas Buzz
That’s why Davidowitz and his team have had the position that Wal-Mart was a buy at $43 a share but recommended that investors bail out at $59, a level Wal-Mart shares last saw in October 2008.
“Wal-Mart is a leading food retailer. That’s their strength,” Davidowitz said. “But half their business is discretionary.”
He says that’s why Wal-Mart’s hipper rival, Target [TGT
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], has fared even worse—40 percent of their business is home and apparel.
If you’re going to buy into retail, Davidowitz says, you’ve got to focus on chains that have no or minimal discretionary inventory.
That’s why his team’s retail recommend list is comprised of Family Dollar [FDO
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], Dollar Tree [DLTR
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], BJs Wholesale [BJ
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] and pawn-shop chain Cash America [CSH
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].
Consumers facing job losses and mortgage headaches can’t even get any credit to help bridge the gap, forcing them to shut down their discretionary spending.
As a result, “stores are closing down at a rapid pace,” Davidowitz said, with new bankruptcies and store closings every day.
The first high-profile retailer to go out of business this year was discount clothing chain Goody’s, which operated stores in the Southeast. KBToys and women’s clothing chain B Moss closed at the end of December.
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And the next domino to fall is real estate.
“We are going to have a massive train wreck that’s going to result in a depression in commercial real estate,” Davidowitz said, noting that General Growth Properties [GGP
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], the second-largest mall operator in America, is on the cusp of bankruptcy.
Unemployment will likely hit 10 percent by December 2009, Davidowitz projects, and there is no clear path to recovery on the horizon.
“Today’s numbers prove that living standards will never be the same,” Davidowitz said. “The American consumer will never shop the same way again.”
Questions? Comments?
Data is a real-time snapshot *Data is delayed at least 15 minutes