Trader Talk

Target problems are bigger than a data breach

Tim Boyle | Bloomberg | Getty Images

With Target (TGT) down almost three percent on its lowered outlook, it's interesting none of its competitors are suffering any collateral damage. Seems like everyone believes this is a Target-specific problem, with the issue being the damage from the data breach.

But, as I pointed out this morning, there is a lot more going on here.

Consumers are still shopping, they're just finding other ways to shop. And a lot of it is online. And companies like Target are not the company people think of when they think, "online shopping."

A lot of analysts believe that is the core of the problem. David Schick, retail analyst at Stifel, believes that HALF of all retail spending growth is now occurring online. In other words, spending is happening, it's just that a lot of it is not happening in stores.

So what do retailers do? For years, they were used to three to four percent comparable-store sales growth; a lot of them aren't seeing that any more, they're seeing one percent growth.

So they have conference calls and they complain about the consumer.

But that's not completely the case...statistics indicate consumer spending growth is close to three percent...they're still spending, they're just spending elsewhere.

That's not to say that there aren't consumers hurting, or that there isn't structural employment. We know many are hurting. That's definitely a factor.

But look at Target. Look what it sells. Everything from paper towels to cleaners to sundries and fans. A lot of this falls into categories consumers can easily buy online. You can have paper towels delivered every eight weeks regularly, if you want.

Then there's the change in the way consumers buy things. Ten years ago, the consumer said, "I want to feel the sheets before I buy them." A lot of consumers (myself included) still want to feel the sheets, but a lot of consumers who grew up on the internet (millennials) want to read 10 REVIEWS that say these are the best sheets. That's a big change.

This dovetails nicely with David Berman's (of Berman Capital) argument that much of the growth in consumer spending is going to Amazon, Apple and Samsung. That may be a bit narrow, but it's directionally correct.