{"id":3246,"date":"2016-05-20T16:31:21","date_gmt":"2016-05-20T20:31:21","guid":{"rendered":"http:\/\/162.223.13.186\/~zacksim\/retailers-getting-crushed-is-the-stock-market-next\/"},"modified":"2022-02-26T13:22:16","modified_gmt":"2022-02-26T13:22:16","slug":"retailers-getting-crushed-is-the-stock-market-next","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/retailers-getting-crushed-is-the-stock-market-next\/","title":{"rendered":"Retailers Getting Crushed\u2026Is the Stock Market Next?"},"content":{"rendered":"<p>You\u2019ve likely heard that consumer spending accounts for 70% of U.S economic activity. While some argue with this figure and how it is derived, there is still no denying that consumer spending has a notable impact on the economy.<\/p>\n<p>So, what happens when retailers take a big hit like many did in Q1? Does it mean that the consumer is tapped out and potentially taking the economy down with it?<\/p>\n<p>A look at some of the data and announcements from Q1 could lead one to believe that a downturn is near. Here are some of the retail industry announcements you may have read about:<\/p>\n<ul>\n<li>Wal-Mart is set to close 269 stores, including 154 in U.S.<\/li>\n<li>K-Mart is expected to close more than two dozen stores over the next few months<\/li>\n<li>C. Penney plans to permanently shut down 47 stores (after closing 40 stores in 2015)<\/li>\n<li>Macy\u2019s reported Q1 sales fell 7% year over year with earnings diving 29% over the same period; they plan to shut down 36 stores and lay off ~2,500 employees<\/li>\n<li>Aeropostale filed for bankruptcy and is in the process of closing 84 stores nationwide<\/li>\n<li>Kohl\u2019s reported earnings fell some 50%<\/li>\n<\/ul>\n<p>The list goes on (and on). With the economy expected to post only modest growth on the year, and consumers appearing reluctant to spend, the question on investors\u2019 minds is: should they underweight or eliminate retail\/consumer discretionary exposure in portfolios? Or, does retail weakness signal an outright recession is around the corner?<\/p>\n<p>In my opinion, none of the above. There is one simple, but important, fact to keep in mind\u2014the way consumers spend has changed. We, myself included, are now less likely to make the trip to a department store or traditional brick and mortar retailer and are more likely to shop online.<\/p>\n<p>These two charts tell the story clearly. You can see that e-commerce spending is on nearly a straight line to \u2018the moon,\u2019 while retail sales at department stores has been on the decline since the 2000 tech bubble (which is also when e-commerce emerged). The tradeoff is logical.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter\" title=\"Image_1_of_3_MOTM_2016-05-23.png\" src=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2022\/02\/Image_1_of_3_MOTM_2016-05-23.png\" alt='Image_1_of_3_MOTM_2016-05-23.png' width=\"610\" height=\"390\" \/><\/p>\n<p style=\"text-align: center;\"><span style=\"font-size: 11px;\">\u00a0<strong><em>Source: U.S. Bureau of the Census<\/em><\/strong><\/span><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter\" title=\"Image_2_of_3_MOTM_2016-05-23.png\" src=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2022\/02\/Image_2_of_3_MOTM_2016-05-23.png\" alt='Image_2_of_3_MOTM_2016-05-23.png' width=\"610\" height=\"397\" \/><\/p>\n<p style=\"text-align: center;\"><span style=\"font-size: 11px;\"><strong><em>Source: U.S. Bureau of the Census<\/em><\/strong><\/span><\/p>\n<p>If you look again at the Q1 retail announcements above, you\u2019ll notice that most of the names mentioned are traditional big box retailers. These are good companies, but they\u2019re also ones that got a later jump into the world of e-commerce. Each one of their earnings outlooks depends highly on how well they can adjust their business models to attract the online consumer.<\/p>\n<p><strong>Total Retail Spending Remains Strong<\/strong><\/p>\n<p>Big box and department store retailers aside, consumer spending is actually strong. In April, the U.S. consumer increased the pace of spending at the fastest rate in a year, with overall sales rising 1.3% month over month. <em>But here\u2019s the kicker: <\/em>of those total sales, Internet and catalog sales have grown <strong>more than three times as fast as overall sales, up 10.2%.<\/strong> Department-store sales, not surprisingly, fell 1.7% over the past 12 months.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter\" title=\"Image_3_of_3_MOTM_2016-05-23.png\" src=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2022\/02\/Image_3_of_3_MOTM_2016-05-23.png\" alt='Image_3_of_3_MOTM_2016-05-23.png' width=\"610\" height=\"404\" \/><\/p>\n<p style=\"text-align: center;\"><span style=\"font-size: 11px;\"><strong><em>Source: U.S. Bureau of the Census<\/em><\/strong><\/span><\/p>\n<p>The cutbacks from retailers that look worrisome on paper\u2014with store closures and layoffs\u2014 are actually companies coming to terms with the fact that consumers are increasingly purchasing online. Following that, it makes less business sense to have physical retail locations. Better to part with those stores and allocate resources to nurturing more formidable e-commerce programs.<\/p>\n<p><strong>Bottom Line for Investors<\/strong><\/p>\n<p>Many headlines warned of a \u201cretail recession\u201d as earnings numbers from players like Gap, Nordstrom and Kohl\u2019s all disappointed greatly to the downside. But, all it took was a more detailed look at the sector as a whole to realize those sales weren\u2019t disappearing\u2014they were just being redirected. Case in point, Amazon absolutely destroyed Q1 earnings reporting $1.07 earnings per share versus the expected $0.61; this was on revenues of $29.1 billion versus the expected $27.9 billion. Therefore, while on paper there seems to be cause for worry in the retail sector, the U.S. consumer is strong and is simply evolving with the new e-commerce\u00a0movement.<\/p>\n<p style=\"text-align: center;\">\n","protected":false},"excerpt":{"rendered":"<p>You\u2019ve likely heard that consumer spending accounts for 70% of U.S economic activity. While some argue with this figure and [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":4122,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59,60,63,71],"tags":[],"class_list":["post-3246","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-financial-professionals","category-institutional-investors","category-mitch-on-the-markets","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/3246","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=3246"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/3246\/revisions"}],"predecessor-version":[{"id":11350,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/3246\/revisions\/11350"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=3246"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=3246"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=3246"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}