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The verdict is still out on whether the U.S. is headed into a recession, at least on Wall Street. But one sector is sending out a serious warning: Retail.
Just consider the long list of retailers who have missed sales or earnings targets, or warned about future weakness: Macy’s (M), Nordstrom (JWN), Kohl’s (KSS), Target (TGT), Gap (GPS), DSW (DSW), Tiffany & Co. (TIF), Best Buy (BBY), L Brands (LB), Express (EXPR), and Fossil Group (FOSL).
That list covers everything from general merchandise to clothing to shoes to jewelry to electronics to watches and wallets. Shares of those companies are all trading at or near two-year, three-year, or even seven-year lows.
Meanwhile, Aeropostale, Quiksilver, Pacific Sunwear and Sports Authority have all filed for bankruptcy. The latter will start liquidating all of its merchandise, and closing all of its 460 locations, over the next several weeks.
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With their merger blocked by government regulators, could Office Depot (ODP) and Staples (SPLS) be headed for serious trouble as well? Absolutely. The two companies are already in the process of closing a few hundred stores, and neither has indicated they’re going to change course.
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| Home Depot’s same-store sales jumped from a year earlier in Feb., but the growth rate slowed in March and April. |
Even one of the strongest retailers over the past few years, Home Depot (HD), cautioned that momentum was slowing. Same-store sales jumped 10.2% from a year earlier in February. But that growth rate slowed to 6.7% in March, then 4.3% in April.
We all know Americans have historically been good at one thing – spending. And we all know that our country’s growth is dependent on that spending, with consumers accounting for about 70% of U.S. GDP.
But judging from the reports I’m seeing across a wide-ranging swath of American retailers, things aren’t that rosy anymore. Whether it’s slowing job growth … a spring resurgence in gasoline prices … lackluster wage increases … soaring insurance and tuition costs … or all of the above … something is bothering U.S. consumers.
[Read More – The Consequences of Reckless Lending – Mike Larson]
That doesn’t guarantee that we’re staring a recession in the face. But it sure does raise the risk, especially this late into the business and credit cycles.
As a matter of fact, billionaire Sam Zell calls this the “ninth inning” of the economic expansion, and I see no reason to argue with the man. So stick with a cautious investing approach, emphasizing “safe yielders” in sectors like utilities, consumer staples, and telecoms … maintain an elevated allocation of cash … and stay alert for additional recommendations designed to preserve your wealth in uncertain economic times.
Until next time,
Mike Larson
Recommended Articles by Mike Larson:
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
{ 47 comments }
Brick and mortar retailers are suffering because more and more people are shopping online over the internet. There is a large shift in spending patterns when it comes to the distribution channels, but consumer spending is alive and well.
That is why there seems to be a disconnect between the poor results being reported by brick and mortar retailers for earnings and revenue and the healthy results being reported by the government economic reports regarding consumer spending.
I don’t know anyone who buys much clothing online – women especially love the shopping experience, the joy of trying on clothes to see how it looks. The Internet won’t replace that.
Robert, you have not seen my wife buy shoes. Everything goes back at the suppliers expense and so extra sizes or designed are tried, one or two kept, the rest returned. Some clothing suppliers can compete via the web
Brother you said a mouth full. Speaking from a womans perspective, I balk at online shopping. Can’t touch it. Totally takes the pleasure out of the experience.
It sure has for my wife. She hates going shopping in stores, dealing with crowds, parking, etc. but has a constant flow of packages from HSN, Amazon, etc. Returns about half her purchases, tries things on, if not to her liking, back it goes. But it satisfies her ‘retail therapy’ need. I see lots of women at the post office doing the same thing.
The economy is being manipulated by those playing the market. There are definitely opportunities to make money in the market. What goes down must also go up.
Walk softly but carry a big stick.
Shopping on line does net effect slowing and trending downward of Home Depot. There are LARGER cause and effects happening simotaneously to create this crash. Yep! forth coming crash.
I saw Alan Greenspan being interviewed on one of the business news channels recently. What he said, at least in part, mirrored the message of Harry Dent….. Consumer buying is beginning to slow down noticeably. Dent’s premise is that this is because of the aging of the baby-boom generation and their empty nest syndrome…… Whatever the reason for less buying, the impact on retail, according to these two fellow’s views, will continue to get worse.
My personal experience is that, while we are fairing a little better at the gas station now than we were a few years ago, other cost-of-living expenses are keeping our pockets nearly empty. …..Don’t know what we’ll do when gas prices begin to skyrocket again…..
No inflation??………..Really???
I have been a regular follower and reader of Dent and his correlation of the economy, here and abroad, with demographic trends. His forecasts on this basis appear to be fully playing out, albeit at present anyway, somewhat slowed due to the sheer mass of FED intervention. Can the FED prevent the tide of population decline and falling demand? Can a few walls prevent a tsunami? The best Japanese engineers and planning couldn’t prevent Fukishima or the devastation. The entire “problem” of population decline cannot be “fixed” with massive FED money printing but instead we face the spectre of a far greater collapse due to the tsunami of debt, personal, state, national and across the globe as David Stockman and others have been warning for so long. Martin Weiss and Mike Larson and many others have been cautioning readers as to the tenuous and high risk environment we find our economy in. The FED is totally and completely wedded to the Keynsian model of just shoveling more stimulus at the problem when in fact fewer people, fewer wage earners and a huge aging segment of the population all point to shrinking consumption and none of these people are in a position or even want to go out further on the debt limb. I propose a very heretical idea to all of this; that shrinking population is actually a good thing for our society and planet. We have been living with the proposition that everything should and can expand exponentially, into infinity. That is just plain erroneous thinking. We cannot nor should we so the FEDs entire premise is built on flawed goals and logic. Just like in nature, we humans are also subject to the various phases of life and now is a time of gradual decline and that is NOT a negative term by any means, just a natural phase of life and to strive for permanent expansion is just plain contrary to every law of nature and economics. We need to tell the FED to stop its insanity and let the system readjust to reality. It wouldn’t be such a bad thing anyway as Americans have consumed and destroyed a horribly disproportionate share of earth’s resources. It’s finally our turn to mature and stop our rampant consumption.
Paul, I think you have it right. Our thirst for ever more materialism seems misplaced and futile, when fulfillment comes from other sources. But ramping down may be harder than ramping up. Also, if the forecasts for the effects of technological change are correct, millions of jobs will disappear over the next 10 to 20 years. If we don’t learn to share better, there will be riots in the streets.
Paul, I devoted an entire segment of my thesis to precisely the subject matter you’ve explored. At the time, Nixon had just killed the investment tax credit (which promptly blew up on him) and then resorted to his version of keynsianism. I felt then that never ending expansion was an economic and social impossibility and my committee raked me over the coals for it. I still believe it, and I agree with your thoughts completely.
Hi,
We face lots of news about problems facing traditional retail and views that it is either a sign of Amazon cutting into their revenues and/or a sign that consumer spending is decreasing. Is there not a simple exercise that could tote up total sales of all retail outlets, online and trad to see if consumer spending is on the way down and also a comparison of growth in Amazon/online sales and decrease in trad sales to see if the numbers correlate? Just a thought but it might give us an idea if Amazon is most to blame or that we are already in the grip of a recession?
The small Mom and Pop retailers are feeling it too. I see lots of them closing here in Fairfield County, CT. Meanwhile, restaurants seem to be booming.
Small companies are getting creamed by taxes and regulations. In CA, it is especially true. Our politicians just look at the small businesses as an ATM that can fund their every stupid pipe dream. And the regs they pile on us…..horrible. The large companies can handle some of this nonsense…the small guys have no extra $ or time to comply with it all.
Just small businesses?? Individuals are getting slaughtered also……. highest property tax, gas tax, housing, CA state income tax, ”fees” on just about EVERYTHING, state sales taxes keep going up………………NEVER ENDS. I dream of retirement so I can get the heck out of this socialist state.
Sorry DJ! We. Are there and seeing our money for retirement drained away like honey dribbled! There is no escape from the horrible socialism dumped on our heads in the last eight years….where were the congressmen and senators supposed to protect us from all those executive orders and regulation,regulations? The only way to defeat socialism is to kill it by voting in politicians who hate it and want to return our country to plans of our ancestors who were wiser than we have allowed current politicians to be! Good Luck to all who happen read this comment and May God Bless America in this terrible time which CAN be fixed if all citizens act with good old common sense and. True knowledge of the true situation facing our country!!!!!
Just as the good book promised if we didn’t learn how to be self sufficient, trading amongst ourselves, and not being slaves to the government. It’s their job to tax us to death. They’ve gotten pretty good at it too.
Sounds like CA has joined the European Union (the eu that Obarma wants the UK to be swallowed up into).
Hillary will fix this stagnation with: High federal taxes and increased welfare spending. The FED prints money, she gives it to her welfare voters … up goes the GDP. It is magic.
Killery has 43 bodies to her name proving her Mob ties !! Hillary was sleeping as Americans die in Liberia !! How are North Korea, Russia, and Venezuela doing under “progressive Socialism ?” Jim
The Titanic did not immediately sink after hitting the iceberg. In fact, for quite a while, the crew and passengers behaved as if it was no big deal.
The US and probably most of the world economies rammed the terminal iceberg several years back. While the leaders want the masses to believe the economy is “unsinkable”, it is not a question of if, but when. Human nature being what it is, the demise has been talked about for so very without it coming to pass that at this point the masses are even more apathetic than usual.
So keep shuffling the deck chairs and let the band play on…
The malls where i are live are just about vacant even spencers gifts and aladdins castle have closed
LOL, No Hilary won’t save the day – our friend Mr. Trump will ride to the rescue, he won’t tell how but he will make America great again. Like most politicians his solutions are all top secret otherwise Hillary would steal them away. He’s entertaining but really quite scary, But Hilary isn’t the solution to Americas problem. Let’s face it no matter who is elected the American taxpayer is screwed.
BUCKLE UP !! SELL Your STOCKS. LOOK FOR COVER.
Even Japan’s PM warned about it. Do you need further proof ?
I live in southwest Fla. and have noticed a slowdown in consumer spending. There are thousands of new apartment units being built in the Lee and Collier county area and I believe this trend will come to an abrupt halt later this year. This is what happened in 2008 when the housing industry overbuilt. There are two major malls withing a 5 mile radius of where I live and they have more then 100 restaurants combined. We have a strong winter season which I assume keeps them open but it will be interesting to see how many survive through the hot summer months. I believe a recession is just around the corner.
Locally, a generally well liked supermarket chain is calling it quits after 73 years. Closing their last 13 stores (sold 5 to another chain). I’ll miss their fresh bakery. They just can’t compete with Giant, the regionally huge Ahold owned chain that dominates the market, Plus Harris-Teeter (Kroger) and Wegmans, the destination market chain moving in strongly. A new Wegmans opening in my area in Sept., and much desired. The nearby Giant had best look out. And there are other chains, of course. Our large regional Mall gave up the ghost this past autumn, closing the JCP and Macy’s stores. Lord and Taylor, Sears, Boscov, and 2 floors of assorted others had already quit. As Deborah points out, new restaurants seem to be opening in the area every month or so, and not so often closing. Liquor stores seem to be doing okay, also. The Feds may have put the kibosh on both Office Depot and Staples, by not letting them merge. In Office Depot recently, and noticed only one other customer. Other times, may have needed to wait for one at checkout. Lots of apartment activity, but not so much individual houses. A few luxury devs. Employment figures in the Baltimore area seem better than many places, though lower than the old good times.
but the stock market still doing good,,,up!up!up!
I hear of retail slowing down, and people not spending as much, and I wonder. Job lay off all over the place, people working part-time at low wages, everywhere. House prices through the roof, in most places. Students saddled with tens of thousands of dollar of debt. People getting older, and, if anything like me, not needing anything, because we have everything that we need. I believe the spend, spend, spend mentality is a dying phenomena, and as the middle class shrinks, there is less and less available income. We are being taxed to death, which takes money out of the retail economy. Truly, we live in interesting times.
I know you have a good rationale for a lower stock market, but you and the so called experts on CNBC have been calling for the same bear market in stocks for a few months now. All the while the stock market goes higher. I don’t mean to be mean, but following your advice would have resulted in BIG financial losses. People need to understand that. The stock market continues higher…..
What goes up must come down. That 19 soon to be 20 trillion in debt will come home to roust and to use some bad grammer it aunt’ gonna be pretty.
Congratulations are in order for corporate America. You together with the best Government money can buy have successfully transferred the productive heart of America to slave wage Nations and pocketed the profits. This has been covered up by the recent debt bubbles both public and private that enabled consumers to keep spending. Now even all of the printed money and borrowing from the future can’t keep America afloat. We simply consume more than we produce and borrow to make up the difference. So congratulations corporate America after sending millions of your previous customers into the economic toilet it’s your turn to spiral down the sewer of “free trade†and tax cuts. You’ve won, now enjoy your victory.
Of course we have the best politicians money (and votes) can buy, and they have been truly paid to make things tough for business. Who bought them? You and I, with our demand for more and more goodies of all sorts. Big money, also, with it’s demand for protection. Trouble is, those demands are at cross purposes, and paying for the peoples’ demands (and votes), meant taxes and rules that made business move production elsewhere. Ask not for whom the bell tolls… it tolls for us, and our wealth.
Seems Ross Perot was right. Jim
Some good comments here. I like them all, especially Mike’s. It would be interesting sometime to see an itemized Tax Invoice: ” Here’s your tax bill and on it is an itemized list of just what every copper is being or has been spent on”. If it’s my bill and I have to pay it, then, shouldn’t I know IN GREAT DETAIL what it’s for? Hopefully, I’m wrong but I think the destruction of blue collar work has ruined our North American economy. We sing the praises of the rich and famous but, in my opinion, it’s the lunch bucket people who carry the load and pay the bills.
Quote The downwardly revised index came in below economist estimates for a reading of 95.5 but was still well above the final April reading of 89.0. unquote. Time to buy stocks folks its the same old bad new is good news razz ma tazz like so much other crap coming out in the business news media.
Retail sales increased last quarter, year over year. As habits change with each generation, so goes shopping. Brick and mortar sales are down, online shopping is up.
Overall, both older and younger people are spending less money on discretionary items, but the US population is still growing.
I’m about to turn 60 and I’ve stopped working, I’ve begun to cut expenses wherever I can. I target an income of $24K annually, the bulk of which goes to rent and health insurance. There’s little left for discretionary items. I think that’s the typical experience of most retirees.
Hi Mike
The central banks seem to be in a bit of a quandary as to how to inflate global economic demand, so let’s recap some of the fed’s policy positions. Lowering interest rates to near zero takes away the spending power of another large demographic. At a time when our middle classes are struggling; retirees dependent on earnings from their savings have seen their income plans crushed.
The central banks believe they can debase currency while retaining its value and bond holders are meant to jump at the chance to invest their funds while receiving negative returns. Economic survival must have consumers with jobs giving customers with the means and willingness to spend with confidence. So many good middle class jobs have been lost to poor trade deals. Wages growth is now festering around the fast food industry. McDonald’s has mostly been seen as an entry level workforce opportunity for students and teenagers starting out. The fast food industry was not set up to be a single bread winning income opportunity for families. If this changes due to pay increase demands to $15/hour they are faced with job losses and increased use of robotics. This is how desperate the jobs market in retail have become. Living within our means and global budgeting has been thrown out of the window. Those voting for free stuff are setting themselves up for the next poverty driven depression. Has the world has gone completely mad? Corporate America, will not return to a Bernie Sanders sponsored 90% tax levy. The consuming public are not stupid, they can see something is wrong here. Not only is there a nervous apprehension on the part of customers to spend or families to move house or investors to invest, we have the weekly blurbs of confusing fed talk. Folks, the central banks have almost completely wrecked the chances for real growth with the prolonged debasement of money. Over the past twenty years or so, Politian’s and an army of overpaid bureaucrats have completely botched economic prosperity. The affordable care act is not affordable. The legacy of the last seven years has been to kick the can down the road to the next POTUS. At some point the music will stop, market confidence will be crushed and many remain fearful. Those who can see the limits of successful government market intervention will be better prepared for what is still yet to come.
All of these things mentioned are signs of socialism taking over. They cannot make the rest of the world like America, so they have to make America like the rest of the world. One day all the world will be poor, ruled by elite, if something isn’t done soon. Targets issues are in house wrong decisions and soon will be closing stores. The ones of us preparing now that live off grid are the ones also buying from Home Depot and doing lots of building. We are spending lots on becoming self sufficient.
Brick and mortar stores were built in areas that met corporate criteria. Many of those areas no longer meet the corporate criteria due to an influx of lower income people. What is euphemistically called “shrinkage” has increased among all retailers. Throw in sales tax exemptions and it would be a miracle if traditional retailers didn’t suffer. Retailers can adjust. Mall owners can’t. Consumers will adjust if they no longer feel safe shopping or a store is victimized by people opening packages then putting it back on the shelf.
Expensive health care premiums with high deductibles have reduced discretionary income
available for purchases that are not necessary. In addition, the cost of food and electricity have risen, further eroding our ability to spend on items that are not essential. Also, buying can be a form of confidence in the future. At this time, confidence is sketchy so saving or investing may make more sense to more would be consumers.
Ding dong bell,
America’s gone to hell,
Who put us there,
Obama doesn’t care!
I own a small retail company mostly Store Fronts, Also have online and Websites.
I have notice the past years online sales are picking up, But not at any cost or lost to our walk in traffic. But if the online is taking away sales from Store retailers, So are the taxes for the States that have these Brick and Mortar department stores. So less sales in your local Brick and Mortar stores is bad for your State.
Also I do not know why, But there has been a very big change in the payment or Retail Stores are receiving. For the last 10 years it has always been mostly been(90% Credit Card and Debit Card purchases. But in the last year it has change to 70% Cash and Debit cards. So I am guessing people are using the extra gas savings or if any extra income to pay down their Debts (Credit Cards).
Maybe our Government could learn a lesson from US consumers, To Pay down Debt and spend only what you have.
There is a chain of stores in Bohemia N.Y. consisting of a KMART , Borders Bookstore , Sports Authority and Office Depot all connected together . The Borders closed a few years back and is vacant . The Sports Authority will be closing soon and I checked out Office Depot and thought that there prices were a little too High and I am wondering if they are next . Kmarts prices still look competitive . Wow the thought of two big vacant stores right next to each and the third might be on Shaky Ground is very scary indeed . Springsteens song Home Town still ways heavily on my mind these days .
VINMAN
I have enjoyed your previous posts and I agree fully here in Rotterdam, NY. Our local mall is a ghost town. About 110 stores in a new shiny mall in 1987. Virtually haunted wasteland now. The Office Depot across the street closed years ago. Same with the local Sports Authority. The last 5 years have seen the demise of the Borders, Filene’s, Macy’s etc. K-Mart barely hanging on in the mall, yet with the June closing of Sears, I don’t like their chances, either. I worked at Sears auto from 89 to 2001, part time after that until 2005. Couldn’t even find a parking spot. Now simply trying to drive in the empty parking lot is a test of will and vehicle suspension parts. Sad, Indeed. The Wal-Mart across town simply continues to grow. Go figure.
Retail prices at office depot are what will kill them. I am sorry but a 6 pak of file folders is not worth $20. A rheem of copy paper is $3 cheaper at wall mart. There is not a single air priced item in the store. It is a convenience store and folks are buying supplies online for 1/2.
john
I agree I looked around and had sticker price shock . Many Items that should have gone for no more than $5 was well over $10 . I cannot see them surviving with prices that high !
Everyone is missing the point—put on your glasses and solve your myopia !!
Every comment posted deals with the Fed printing and national retail sales. The fact is we are 350 million people on a planet of 7 billion people. Read again–we represent 5% of the global population !!!! Now that Socialism has collapsed and been discredited everywhere except College Professors and other rich intelligentsia we must accommodate 3+ billion people joining the Free Market worldwide. We have excess Labor beyond belief—but, if we can find productive work for these people they represent a HUGE demand for goods to lift their standard of living up dramatically. THERE IS NO CHOICE BUT TO KEEP PRINTING AND PRINTING MONEY until an equilibrium of sorts is achieved. Our alternative is war or disease to kill the vast majority.
It’s a new world with communications, computers, internet and travel so we must discard our simple view of the U.S. and start thinking globally.