Hard Holiday Shopping Season

By The Greek - Economy & Markets

Visit the front pages of Wall Street Greek and Market Moving News to see our current coverage of economic reports and financial markets.

In case you had any doubt about consumer softness, or maybe thought people would always celebrate the holidays with generous gift giving, well today's Retail Sales Report surely raised some doubt. The report noted the worst decline since 1992!

(Article interests: AMEX: DIA, AMEX: SPY, Nasdaq: QQQQ, NYSE: NYX, AMEX: DOG, AMEX: SDS, AMEX: QLD, AMEX: XLF, AMEX: IWM, AMEX: TWM, AMEX: IWD, AMEX: SDK)

October Retail Sales fell 2.8% on the headline figure, which includes grocery. Retail trade fell 3.1% otherwise. The big scare comes when comparing this October to that of 2007; against that measuring stick, total retail sales came up 4.1% short.

While stocks retreated on the data, this news should have come as no surprise, considering last week's individual chain store sales disaster. In aggregate, chain store sales were estimated 0.9% lower last month. We heard from retailers large and small, luxury and discount, and the story was nearly the same across the board.

Department store sales fell 11%, continuing a trend we've observed for a while. However, over the past couple months, we've also seen new and troubling development on the high end. Luxury retailers posted a 19% drop in October, and first started showing signs of trouble in late summer. Saks (NYSE: SKS), Nordstrom (NYSE: JWN), Tiffany (NYSE: TIF), Neiman Marcus and others all posted dreadful results. We expect the dive in financial markets, which accelerated within the same time span, temporarily shell shocked the rich; but we anticipate some moderation of this trend through the holidays. There's simply more leeway for these folks to spend, where on the low end, it's a matter of resources, not psyche.

Shift to Discounters

More and more Americans are having a resources issue though, most notably those who have lost their jobs. Excluding Wal-Mart, October same-store sales fell 4.2% in October, versus 0.9% when including WMT's beneficial impact, according to the International Council of Shopping Centers (ICSC). Wal-Mart (NYSE: WMT) really stood out last month, as it grew same-store sales 2.4%. The nation's largest retailer also posted a third quarter profit rise of 10%, while its peers are languishing. JC Penney (NYSE: JCP), for instance, posted a 52% decline in quarterly profits this week.

There's a clear migration toward discount, and it has helped Wal-Mart to take market share from segments of citizenry it may not have otherwise reached. Good news for the discount king, because we think that over the longer term, some of these shoppers just discovering the Wal-Mart value will stick around.

This is not atypical of tough times. Difficult economics drive shake-out in the competitive marketplace. The strong are separated from the fluff when supply saturated markets are exposed. For instance, electronics and appliance retailers experienced a drop of 2.3% during the month and 5.6% versus the prior year. Already, Circuit City (NYSE: CC) has filed for bankruptcy. Best Buy (NYSE: BBY), on the other hand, expects to survive.

Sales Ex-Auto

The disaster of the auto industry has been well noted. October sales within the auto sector were the lowest in 25 years, forcing Detroit into emergency cash preservation mode. Auto executives have been sighted on the steps of Capitol Hill begging for change. While the President and Congress wheel and deal the future of the auto sector, bargaining auto aid for a Colombia free-trade pact, a large group of Americans mostly in the Midwest are hanging on a string. The Census Bureau reported today that retail sales excluding autos fell 2.2% in October. Sales by motor vehicle and parts dealers fell 5.5%, acting as a drag on the overall result. We bet if you measured Michigan's sales separately, they show a consumer burrowed in.

Data Slightly Askew

This month's report is slightly misleading thanks to the drastic decline in energy prices. As you know, sales are driven by two factors, volume and price. Well, the price of gasoline has fallen sharply, and is now $2.15 a gallon on average. It was only July that the price of gasoline was over $4. Needless to say, sales at gasoline stations fell 12.7% in October. While some of that is likely due to increased unemployment and conservation, most of it is due to price.

Price change influenced the retail sales report, but gas station sales still increased 0.4% over October of 2007. Overall retail sales fell 4.1% over that same span, so we can't ignore the obvious problem, consumer sentiment and spending. That's not to mention limited consumer resources.

Retailers Will Have to Do More

Following the soft October shopping news, the ICSC revised its holiday sales growth forecast to 1.0% from 1.7% previously. However, if Wal-Mart can pull in shoppers, then there's hope for others who can successfully take a greater portion of the smaller pie. Retailers will have to find innovative ways of luring shoppers into their stores, versus those of competitors. And while they have them there, they had better squeeze a few dollars out of them.

Target (NYSE: TGT) for one has already altered its model to include grocery items that might draw traffic; in doing so, it becomes more like Wal-Mart. Never before has the talent of individual executive and managerial staff been so important. This shopping season will expose the weak and lift up the strong within this space.

It's Still Christmas

Let's face it, it's still the holidays. People may spend less, but they're still likely to spend to put gifts under the tree for friends, family and toddlers. The presents may be more on the pragmatic side, and light on non-necessities, but there should still be some sort of gift under the tree (or shrub). Merry Christmas, happy holidays! Maybe a greater gift will come of all the turmoil and pain. Perhaps people will remember what's really important in life as a result, health, true happiness, love and dare I say, God.


Please see our disclosures at the Wall Street Greek website and author bio pages found there.