No More Retail 'Nirvana': Hedge Fund Manager
No more retail "nirvana," David Berman, founder of Durban Capital, which manages over 100 million in assets told CNBC today.
Berman has focused solely on retail for some time. This past spring he changed his opinion and downgraded the retail sector for several reasons.
First, "WalMart is back to being Walmart," the hedge fund manager said. The company represents 23 percent of all sales from publicly traded retail companies.
With this enormous stronghold, "this is not good for the supermarket chains or for discounters now that WalMart is back to being more price competitive," he said. Take J.C. Penney and Kohl’s for example, they may get hurt because Walmart does have some apparel.
Second, if you look at the math in the retail sector in general—home improvement, discounters, apparel retailers, supermarkets, and department stores—"this sector could turn negative come September," Berman said, adding, "people are worried about. "
Third, the rising labor costs are weighing on retailers.
Fourth, electronic sales are slow with high inventories, for example Best Buy.
Also struggling are drugstores—with Walgreen and CVS Caremark among them.
But not all is lost: William Somona is a good example of what is working. Their same store sales are up 17 percent but inventories are down 8.5 percent. Also, the shoe industry is seeing the highest in sales growth, he said.
"The key to retail is to look at inventories," in relation to sales, Berman concluded.