Monday, December 13, 2010

Twelve Days Until Retailers Call It a Day

If this weren't the most over-hyped Christmas season in the past six years, one would be wondering where all the ads are on TV. Retailers continue to proclaim that this year will be better than last year (which was pretty bad, in itself), that same-store sales are showing solid improvement and all the rest of the nonsense they banter about to shareholders and keepers of the materialist Christmas buying season creed.

But, with just twelve days to go before everybody stops shopping and actually opens the presents, there are some indications that this holiday season is going to be quite awful for many a retailer.

Here's a few reasons why:
  • "Same-store sales" are always measured against stores open a year or longer. Most of the larger retailers have already closed many non-or-under-performing stores, so the comparisons look better, even though there is less volume.
  • November non-farm payrolls actually showed a decrease in November retail hiring, at a time which retailers are normally hiring more staff for the "Christmas rush." This is a troubling sign that there is no rush this year.
  • Inflation has pushed up prices for many gift items, especially clothes, which are primarily made of cotton, which price went nearly exponential this year. Higher prices will result in high same-store sales, though buying the same sweater this year rather than last will cost 5-10% more, making it look like there were more sales when in fact there were not.
  • On Friday, December 10, TJX Cos., the parent company of TJ Maxx, Marshall's and HomeGoods, announced the closing of 71 A. J. Wright stores and the conversion of 91 others into TJ Maxx or Marchall's stores, and permanent job cuts of 4400 nationwide.
  • According to a BDO survey, 63% of retailers are spending what they did last year on advertising and marketing; 20% are spending less, and just 17% have increased their budgets over 2009.
  • Retail sales for October were up 1.2% (ex-auto, 0.4), but November, the start of the holiday shopping season, is expected to show a gain of only 0.5%. The figures are due out on Tuesday, and anything less than that may cause investors to reconsider retailers in their investment strategies.
All of this points to a ho-hum kind of Christmas season, when a whiz-bang one is what's needed. Unemployment is too high and consumer deleveraging continues at such a hot pace that one cannot reasonably expect high demand for consumer products. Some retailers may actually close more stores in January or February, or file bankruptcy, as Great Atlantic & Pacific Tea Company (A&P), parent of Waldbaum's and Pathmark stores, did last week.

Harder hit will be smaller, "mom-and-pop" type retailers, who generally have less room for error, tight - if any - lines of credit and no tolerance for losses. Retailing has been hit hard since the market collapse of 2008, and many small businesses fall into the retail category.

A little bit of good news is that some of these retailers may close their Main Street or mall shops, only to re-emerge online with business being run out of a home or less-expensive location. The trend from brick-and-mortar to online continues to grow and has actually been pushed by tight margins and high rents which plague many a retailer.

Still, when the country wakes up on December 26 and again in early January, only to find that the economy is still as sluggish as ever, there will be repercussions and more casualties.

Some of that sentiment may have been reflected in today's trading on the stock markets, which broke higher in the morning, peaked just before 3:00 pm and sold off hard into the close. It was an unexpected start to the week and may be offering a clue about tomorrow's 8:30 am retal sales release.

The Dow, NYSE and S&P registered marginal gains, closing at or near the lows of the session, while the NASDAQ broke an eight-day winning streak.

Dow 11,428.56, +18.24 (0.16%)
NASDAQ 2,624.91, -12.63 (0.48%)
S&P 500 1,240.46, +0.06 (0.00%)
NYSE Composite 7,850.02, +26.72 (0.34%)

Decliners beat advancers, 3459-3059. NASDAQ New Highs: 279; Lows: 19; NYSE New Highs: 271; Lows: 87. Volume was dull, as per usual.

NASDAQ Volume 1,853,841,375
NYSE Volume 4,861,153,000

The real action today was in the commodity space, which heated up once again with the Fed injecting $8.9 billion in fresh cash to the Primary Dealers through Treasury purchases. Oil advanced 82 cents, to $88.61. Prices for non-leaded regular gas are now over $3.00 per gallon in most of the United States. The most recent gold price was $1394.50, up $8.90. Silver had a huge rally, up 87 cents, to $29.55, and should break through the magic $30 mark this week if trends outlined by Turd Ferguson play out with resistance at 29.50 broken by today's close.

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