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Retailers are reeling — from falling sales, online competition, and slowing consumer spending. And if I’m right, the sector’s pain signifies big trouble for the economy. Ditto for Real Estate Investment Trusts, or REITs.
Start with Gap Stores (GPS). The iconic retailer has more than 3,700 stores around the world, including Gap, Banana Republic, and Old Navy. But it’s experiencing a downward spiral, warning earlier this week that its earnings would miss forecasts. Same-store sales collapsed 7% in the most recent quarter, compared with analyst expectations for a rise of 1.1%.
Debt analysts at Fitch Ratings responded by cutting GPS’ debt rating into junk territory. Stock analysts also slashed their ratings on GPS shares across the board, sending the stock down to a four-year low.
Then on Wednesday, department store chain Macy’s (M) dropped yet another bomb on Wall Street. The struggling chain said it would miss both sales and earnings targets in the current quarter and year. Same-stores sales dropped more than 6%, compared with analyst expectations for a drop of around 3.5%. That sent the stock careening to its lowest level in four years, too.
Other retailers like Fossil Group (FOSL), Kohl’s (KSS), and Nordstrom (JWN) also got dragged down by the selling, as well as their own sales concerns. Don’t forget that Aeropostale (AROPQ) just filed for bankruptcy a few days ago, joining other specialty retailers like Pac-Sun (PSUNQ) and Quiksilver (ZQK) that already did.
As a matter of fact, the chart of the diversified SPDR S&P Retail ETF (XRT) looks awfully suspect. It hit a two-and-a-half-month low today, and appears headed back to the panic lows from early 2016.
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| I’ve been warning about lousy retail sales for months. |
The good news for you? This should be no surprise whatsoever, and you shouldn’t own any of these turkeys. That’s because I’ve been warning about lousy retail sales for months here in Money and Markets. In fact, I said in February that:
“The U.S. economy and U.S. consumer aren’t in very good shape … and that the trend is worsening with time. Tighter credit conditions, weaker consumer sentiment, rising costs for non-optional expenses, like healthcare, housing and more, are really starting to bite.
“So it’s not that Amazon (AMZN) is stealing a greater share of the retail pie. It’s that the overall pie is shrinking! If I’m right, it’s going to be another serious negative for the stock market to confront.”
The American growth engine is powered by consumer spending. If spending is weakening, that will put the domestic economy on increasingly shaky ground.
The retail problems should cause trouble for another group of stocks: REITs. Everyone has fallen in love with them because they feature generous dividend yields in today’s low-rate world. But unlike consumer staples or utilities, whose revenue and cash flow are more stable, REITs are much more economically sensitive. After all, they pay their dividends with income that comes in from rents.
[Read More – The Consequences of Reckless Lending – Mike Larson]
What do you think is going to happen as more retailers go broke, close stores, and stop making their lease payments? Traditional malls and strip shopping centers will see vacancy rates rise, cash flow drop, and rental concessions increase. That will only add to the pressure on REITs already coming from the multifamily sector. Conditions in the apartment market are deteriorating fast because of massive oversupply, weakening demand, and slumping rent growth.
Bottom line: Make sure you continue to stay away from retail stocks. And take advantage of Wall Street’s willful blindness on REITs to get out of those overvalued stocks at today’s still-attractive prices.
Until next time,
Mike Larson
P.S. Here’s the secret that savvy insiders know and that can make YOU very rich, very quickly: In the past, every time oil prices have fallen this low, this fast … without exception … they have rebounded with a speed and force that leaves investors stunned. And investors who had the foresight to gobble up select oil and energy stocks at rock bottom prices, made vast fortunes virtually overnight. In other words: This is a rare opportunity to make a lot of money … very, very quickly. Click here to learn how to take advantage of this opportunity before time runs out!
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.
{ 53 comments }
A wise man once said, our entire economy is based on folk buying stuff they don’t need, with money they don’t have….on credit. When that is shaken, and folk realize they don’t really need that new pair of shoes, or their 30K mileage car will last a couple more years,…….we’re toast.
Their 230,000 mile car will last another couple of years…
I recently saw a survey that asked working Americans what they would do if they reviewed an unexpected $400 bill this month. Forty seven per cent said they would have to borrow it or sell something. Static incomes and rising taxes, fees, and fixed expenses are catching up to a lot of us. I don’t have any spare cash lying around. Do you? Jim
you don’t seem like the kind of guy that would be out of money to me, jim. you’re way too smart and talented.
Mike
The central ingredient in all of this is trust. People don’t know who to trust anymore. Washington’s figures don’t add up, the fed is interfering with interest rates, commodity markets don’t make sense and the public aren’t stupid. Who would buy stocks at the top of the market cycle even with negative interest rates. The global reserve banks are doing their best to destroy the value of money. What else can ordinary citizens do who aren’t listened to by Washington but display a lost confidence in the system.
Howard, allow me to add to your fine post.
The loss of trust, now bordering of distrust was created on purpose. This has likely been going on for a few decades, but has clearly escalated dramatically under the current administration.
Next up? Chaos …. also part of the plan. For now staying out of harms way seems prudent, and once we see major what the new trends are, we can adjust accordingly, and go for a profitable ride on that train. But for now … keep your powder dry.
There’s a trust that peoples pensions will continue even with some states bordering on bankruptcy. There’s the older folks in the once middle classes watching their savings erode through low interest rate returns. Some are frightened for their own and their families financial future. It’s a long list. This is not just politics from one side or another, it is massive bureaucracy overtaking capitalism and fighting to protect itself.
Mike,
The world’s economies are going into “economic shock” as more income is garned by the one percent. With the one percent getting 93% of the growth in income since the 2008 Meltdown and the distribution of income and wealth as bad and becoming worse than it was in 1928, consumer demand is downsizing to necessities first as discretionary incomes decline. But, it is Marxian heresy to suggest that the taboo R-word (Redistribution) is the only remedy now that another dollop of debt can no longer dig the hole of looming defaults deeper because most participants in the economy are already mired neck deep in the sludge of debt service at the bottom.
George,
You missed the really import “R” word which is Republican….. the voters bought the GOP Kool Aid with Voodoo Economics and Trick down Economics in 1981 and ever since then, the 3% have gotten richer and the 97% have gotten screwed……. This has happened before in the past 100 years……. That was in the 1920’s and it ended with the Crash of 1929 and a 90% loss….. It would appear that the Crash of 2007-2009 with a 60% loss was not enough for the voters to rebel as they did in 1932…… Perhaps the next Stock Market Crash and Depression will be enough?
The voters did not buy “Voodoo Economics”. They were repulsed by four years of the most incompetent President in U.S. History ( up until now) whose economic and foreign policies brought the Nation to the brink of ruin. I think he was a Democrat. I actually voted for Jimmy Carter, much to my regret. Howdy Doody could have won the 1980 election. The wealth gap you refer to is very real and has gotten much worse under Obama. Jim
Jim,
You are an educated man… Look at a chart of Income Inequity and Federal debt and you will see that it began in earnest in 1981 with Reagan….. Got no idea what you ae talking about the “edge of ruin”…… Carter brought Volcker who was responsible for the rally from 1982 until Greenspan, the mumbler (who was appointed by Reagan) who thought the removal of Glass-Steagall was NOT a problem….. Opps?… :(
the pendulum swings both ways. it’s now swung all the way to the right and it’s only a matter of time before it begins the long, drawn out journey to the left.
First is the demographic shift as Boomers shift into retirement, with fixed incomes and lower need for new anything–clothes, appliances, cars, homes, etc.
Second, is the cleanup of excess capacity built in the Oughts (or Aughts–2000-2009) that accompanied the housing boom. The maxim “retail follows residential” that I first learned from George Christie, a McGraw-Hill Construction economist, cuts both ways. When the housing boom went bust, it took away the coinciding retail opportunity. We are still working our way through the excess housing inventory, so it makes sense that the retailers would be having to make hard choices.
Add to that the increase in on-line sales and the still-declining purchasing power of the American consumer and inflation (check your cable bill, health insurance premiums and rent) and there is no mystery in vanishing retail sales.
Wow, somebody with a coherent and reasonable comment….finally
Some time ago the American politicians divided America into economic sectors in the spirit of China’s Great Leap Forwards and the Soviet Unions incessant Five Year Plans. The results are the same. It had more to do with politics than economics. There is a saying that “retail follows roofs”. To that end politicians have annexed growth areas into cities and combined city-county governments with federal taxpayer money. The infamous urban sprawl. Each political class wants to make money from this process the same as their predecessors. The only way that can happen is to displace the previous citizens. It’s a cycle that is too expensive to continue forever regardless of government gimmicks. The internet that was forgiven sales tax to kick start e-commerce oddly enough reduces impulse sales, and tax revenue, from the brick-and-mortar stores and their suppliers. That’s an example of political business tinkering.
Social mood sets the table for the stock market. And when it goes negative as it now is….trouble is brewing. How do you know it is negative? Look at the 2 outsiders chosen by large numbers the electorate in primaries. The 3rd person, Hillary, is only in this race due to her advantage from a sham system.
Hillary doesn.t have one idea of her own. A vote for her is a vote for a third term for Bill, which is supposed to be unconstitutional. That is why Donald will win – unless Bernie can somehow come from behind.
If Trump offered Bernie a cabinet post it would be all over the same day. Jim
there once was a liberal democrat who was president of the screen actors guild who became a staunch conservative and became president of the united states. his name was ronald reagan. very easy for a liberal democrat to become a conservative republican. bernie could very well make the leap too.
Reagan was a B level actor who basically had little soul…… He supported and was involved in the Union movement in the film industry until he got rich, then became a turncoat to the very people who had made him rich….. Of course the 3% loved him and showered him with even more wealth along with a lot of other Quislings and here we are on the edge of another 1929……. The conservative 30 year cycles ALWAYS end this way….. The last Liberal Progressive cycle (1932) ran about 60 years (right on schedule) and was the greatest period of economic prosperity America has ever known….. Amazing what happens when the majority of politicians look to improve the lives of the 97% rather than selling their souls to the 3%……
General Dissatisfaction with US Government is reaching all levels of the Economy finally
voters realized that Politicians of both parties are corrupt, incompetent and will no longer
support “the establishment” the unexpected raise of Sanders and Trump is not a “signal” is
“reality”. Despite the Corporate News Media smearing the “outsiders” an “outsider” will win the Presidency, this time is a game changer Americans want a Change and they will get it !
I absolutely agree. Myself,I call it the “Quiet Revolution”–countless people have made up their minds to vote for Trump,and they simply aren’t telling anyone.After all,depending on where you are,being a vocal Trump supporter can make you a target of the left-wing hate-mongers.Even better,many are people who rarely if ever vote,either way,I am 57 ,and this should be one of the wildest elections in my lifetime,
Spoken in true Goebbels/Rove/Orwell style: good is bad, war is peace, yadda, yadda…. Never changes and those that buy the BS are doomed to bring hard times again…… It is the 1930’s and right wing demigods are screaming hate and if the majority are stupid to buy their swill, we will truly be in read trouble as goes America, so goes the world…. If the majority go for Drumpf (Interesting that his background is German, aye?) the entire world could be entering another Dark Age as their is a Huge Military Power in the Far East, that the 3% built believing that they could get even richer by screwing American Labor…… And it is just waiting for America to fall so that it can rule the world, just as two despotic Dictatorships believe in 1941…… Truly we (and the world) are at a turning point between stupidity and war or enlightenment and prosperity…..
Most economists to the extent that they think about the subject at all think that nothing like the Great Depression can ever happen again. Well we were foolish, the kind of trouble that we are all experiencing now, is precisely the sort of thing we thought we had learned to prevent. Some advanced economies have no answer to prolonged periods of stagnation and deflation.
Maybe the proliferating mattress stores can prop up the value of strip malls.
Back in the 1930s, FDR was smart enough to put people to work – often in seemingly inconsequential jobs, but they put food on their plates and a few bucks in their pockets. Also, they actually built infrastructure – roads, utilities, etc. – that helped us to win World War II. Today, all that old infrastructure is deteriorating and needs replacement, along with much that was built since then. Would Hillary/Bill do something like that? It’s doubtful. Donald? He might want to, but would have a battle with his Party. Bernie? Possibly, though he would also have Party problems. Where are the leaders that America used to produce?
The FDR generation was repulsed by the idea of a handout. They took pride in hard work and self sufficiency. Remember Russel Crowe,in Cinderella Man, standing in line to repay his welfare payments? Thanks to well intentioned but misguided Liberal policies this has been replaced by an entitlement mentality. Rather than address the unintended consequences of their policies they always want to double down, making things worse. They also fail to acknowledge that the government can’t give somebody something without first taking it from someone else. The WPA would never float in our current Society. We badly need something like that but I don’t think it will happen. Jim
It used to be that government floated a plan to deal with a problem, and people had a voice in either making the plan work, or changing it to better deal with facts. Now, government says do it this way, or there will be penalties. Eventually people will get fed up with that, ‘Trouble is, when the guns come out, people will be heavily outgunned by the professional army the politicians have established. Revolution may ultimately succeed, but it will be very expensive, and may result in some other form of tyranny.
Guys, Obama brought a plan very similar to FDR’s… After saving the banks, the Republicans kept it from happening….. So much for their commitment (NOT) to the 97%, aye? Look it up on Google or Wikipedia…..
Obama was given trillions…only 3% went to real projects. The rest went to his political cronies and unions. The guy is totally corrupt. Wake up.
OK, I give up! Why is the crying towel out for retail stores that pay part time wages? They add little prosperity to the middle class. They produce nothing but the exchange of foreign made goods for dollars. Retail malls will be replaced by internet commerce. Although poor Eagle keep harping on the Republicans, Greenspan, Bernanke and Yellen are all progressive liberal Democrats, who are all responsible for distorting the monetary system so that only the top 1/2% benefit. Store front retail is being replaced with Amazon web based retail delivery systems.
Greenspan who sat at the feet of Ayn Rand is a liberal Democrat?
My concern is the trade-off of fewer employees needed for on-line sales than what are needed in brick and mortar establishments? I see it no different than the loss of jobs as a result of technology gains. Fewer jobs, less overall disposable income, more cutbacks, and the spiraling down continues. This is business evolution today….and over time it will circle back on us. Are we all better off as a result of where we are heading, political parties/candidates aside?
I agree, Dave, and the thousands of people employed currently at the on-line fulfillment centers had better look out. Didn’t Amazon just buy out a robot company?
Lots of very interesting thoughts. I Keep waiting for the death nail to occur. This weeks retail data seems to clearly indicate that many Americans know something is up. They may not understand what, but something. Trust appears to be eroding. People appear to be carefully evaluating their money or lack there of. I truely wish things were different and life “would just continue on”. It does not matter who is elected – assuming we make it that far – The fundamentals are non- existent and it is only a matter of time, sequence of events and the final blow of greed when the one large king pin pulls back. Best of luck. Hang onto your hat!
Guys,
Until we throw the Republicans out of office, we will NOT see GATT and NAFTA thrown out. And until those jobs return to America’s shores we are screwed…… So make a decision when voting as to whether you want America to return to the Golden Era that we grew up in or whether you want the 3% to get richer and the Middle Class to dissappear, which, despite all the GOP Propaganda, is going to happen unless we start looking out for the 97% rather than the 3% who the GOP is so beholden to since they bought their elections…
I see the rest of the world dumping the dollar,BRICS nations,AIIB,ect.. Over seas people used to fight over green backs , now the stores all have signs in the windows saying No Green Backs. With the world increasingly dumping the dollar,and the US having a much harder time finding pawns willing to export our debt to (which made this country wealthy)it is drying up the” Big Party ” we been having for the last forty years.
I think the world dumping the petro dollar is a matter of high national security and we will be in WW111 soon. A war that starts out of the Euphrates river area and escalates into killing one third of mankind Rev 9:13-21.
WW111 will not just start one day, You will see the build up, You will see the aircraft refueling tankers flying, The bombers gearing up, The trains loaded with military equipment. WOW I been seeing that alot here in the last couple years !! I w0onder if they are preparing for war? I wonder if they think China and Russia might bring their subs to our coast and wipe out our coastal cities ? I wonder why I have seen more military equipment being dropped off all over our southern boarder in the last 2 years than I watched them load up and take to Iraq and Afghanistan in the last 15 years ? Could they be expecting a conventional invasion from the Mexicans or are they more concerned about the people that run the Panama Canal invading us ? I wonder if those people are loading up military in that direction ?
I have not seen it ,but I suspect they are unloading military equipment in the north the same way as I know they are here in the south . If not on Our Northern Boarder then on Canadas Northern Boarder. Why on earth would they do that “You silly man !” you ask ? Could it be Russian troops are much closer to Canada than crossing the Atlantic or Pacific Oceans ? Oh but if we got into WW111 we would all be dead, because of all the nuces. I wonder if they or we would use many nuces on the area between the Rockies and the Appalachian mountains because thats where all the resources of this nation are ?
I know you folks are miles ahead of the rest of our asleep nation, but its time people should WAKE UP!!!!
Wake up call for all us geezers. Little Stevie Wonder is sixty six years old today. Jim
A lot of this, after you take out all the oil and gas employees that are not spending, and create a bigger impact than you think, is about demographics. About a decade ago, there was a “Pig in the Python” that was a large group of teens and young adults . That group has moved on through now, but Gap, Old Navy, Pac – Sun, Quicksilver, Limited Brands, ……and the list goes on – grew their store count to serve that group. Whoops! Now the group of adolescents and young adults is smaller. At the same time, Baby Boomers are turning 65 at the rate of 10,000 per day, and they want to get rid of stuff and downsize – not buy more. This will only get worse. it would have happened if the economy was booming! Add to all of this, the “Casualization” of America, where yoga pants are the new “jeans”, and flip flops are considered shoes. No wonder retail stores are hitting a wall!
Demographics are definitely a determining factor. Also, don’t forget big government, brought to you by Demoncraps and Republicrats, growing by leaps and bounds, while the average wage earner makes less than real wages than he did in ’99.
Jim ,Im just amazed at how asleep the people are,and seems they are not going to wake up till they are hungry.
Those of us that bought stock in Amazon and Ebay years ago were not too surprised to see the effect that they are having on the brick and mortar stores…. Just as Walmart took out the small stores, now Amazon and Ebay are challenging Walmart…… And now comes the new kid on the block called Jet…..
The sugar high is turning sour.Drunkenmiller has articulated as much.
With retail sales slowing down, retailers only option, in some cases, in the long run, is to reduce costs. That means lower employee costs, lower utility costs, reduced opened hours to when most customers would shop.
I work for a company that has a 0 Credit score. No, not from bankruptcy, but from the fact that it is company policy to not borrow money. Expansion by adding new stores is paid out of the profits of the company. A new store “pays for itself” by paying back the company over a 10 year period, thus adding back moneys to build and remodel more stores. All merchandise is paid promptly without credit, and taking advantage of any discounts offered for quick payment. This policy has kept our company in good steed in these tough times.
I would like to thank everyone for their comments. I learn more here than I learn on any other comment section. Best if all, the language is not peppered with filth and insults.
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.
We came through the same thing in 1929 and by 1932 the American voters tarred and feathered the Quislings and we had prosperity for 60 years, until the Grandchildren (who lived the good life) of those that lived through the Great Depression forgot the lessons of their Grandparents and let the Quislings back into the hen house and those Quislings did just the same thing again…. Hopefully the coming generations will have longer memories….
I work in a thrift store that has seen an increase in sales this year of about 15% over last year. JCPenney’s went out of business here in April and Kmart is closing in July. People aren’t buying new as much because they can get so much more for their dollar at the thrift stores. Of corse, the Walmart is doing well and the grocery stores seem to also. I made $15 per hour back in the 80’s and minimum wage now. I have dropped from upper middle class to poverty during my lifetime. The economy is in a mess, that is for sure.
Ya, too many bought the Right wing Kool Aid and elected the GOP into a majority and the 97% has suffered greatly…. Soon, enough will stop believing the Right Wing Propaganda and throw the Quisling out as our Grandparents did in 1932,,,, Soon the majority will say “Enough” and vote accordingly and prosperity will return…..
And remember: A government big enough to give you everything is big enough to take everything!
Why are REITS over valued?
Ever think of going into standup comedy eagle?
Very good!