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Friday
Aug162013

Retail Woes: They Shopped Till They Dropped

Men’s apparel retailer Jos. A. Bank Clothiers warned that sales in the quarter ending August 3 had plunged 11% from a year ago. OK, so it suffered from management foul-ups, goofy marketing, obnoxious ads, and – at least at the store I looked at – dusty shirts on the shelf. But it wasn’t an outlier. Instead, it was the latest entry on the laundry list of revenue-challenged retailers whose woes are spreading relentlessly across the US.

Walmart saw its same-stores sales in the US skid by 0.3% last quarter, down for the second quarter in a row, as nothing seemed to work for it anymore. Its customers, whose real wages had been declining for years, were struggling. So it lowered its sales forecast. “Our expectations for the back half of the year are through a lens of cautious consumer spending,” CFO Charles Holley explained gingerly.

Macy’s namesake stores reported the first same-store sales decline in about four years. When sales didn’t meet analysts’ expectations for the first time in 25 quarters, CFO Karen Hoguet offered a hard-boiled, highly quantitative analysis: “We believe that much of our weakness is due to the health of the consumer.”

While Macy’s upscale Bloomingdale’s, the hunting grounds for those who benefit the most from the Fed’s trillions, reported strong sales, it wasn’t all roses in luxury lala-land:  Nordstrom’s, which aims for the middle-to-upscale market, knocked down its forecast and said that sales “remained softer than anticipated.”

Hopes for the second most important shopping season of the year, back to school, got slammed when teen retailer American Eagle Outfitters chopped its outlook for second-quarter earnings in half, after confessing to crummy sales – down 2% overall and 7% on a comparable-store basis. “We are not at all happy,” grumbled CEO Robert Hanson, who then blamed women who hadn’t bought enough, lousy traffic, and a price war. But at least they were able to get most of their stuff out the door, rather than suffocate under a pile of out-of-season inventory, he said, adding gloomily, “The domestic retail environment remains challenging.”

Whenever a retailer said anything at all, it doused the market with disappointment. Same-store sales at Costco, a company that could do no wrong, rose 4%; analysts were expecting 5.1%. Consumers weren’t splurging on high-dollar TVs, it seems. At Kohl’s, revenues rose an anemic 2.0%, and comparable store sales edged up a minuscule 0.9%. Sales growth below the rate of inflation is a condition that afflicts many retailers these days – the lucky ones whose sales weren’t falling!

So finally, the University of Michigan/Thomson Reuters consumer sentiment index caught up with reality: it plunged 5.1 points to 80.0 – when expectations were set on 85.5. It was the worst miss since anyone can remember. How could these people get it so wrong when the retail picture had been dimming for weeks?

Either they were afflicted with euphoria, a vision-impairing condition, or they’d paid too much attention to the Commerce Department’s report a couple of days ago that claimed that retail sales had edged up a lackluster 0.2% in July from June, but that auto sales, which had been booming, had suddenly swooned, and that excluding autos, retails sales inexplicably jumped 0.5% (though plenty of categories were in the hole: electronics, building supply, furniture....).

The culprit in the report, the auto industry, has been ecstatic for a while. In July 2012, the sales rate, measured by the “seasonally adjusted annual rate” (SAAR), had been 14.21 million vehicles – superb for the post-crisis new normal, but a far cry from the pre-crisis normal rate of 16 million vehicles. This year, auto sales had been soaring, hitting a rate of 15.88 million vehicles in June, the highest since before the crisis, but then edged down in July to a rate of 15.80 million.

The buying binge had been funded by a phenomenal debt binge with historically low interest rates. Auto loan originations reached $92 billion in the second quarter, the most since the halcyon days of 2007 according to the New York Fed; and auto loan balances rose by $20 billion, the most in seven years, piercing $800 billion for first time since 2008. No wonder the auto industry has been on cloud nine. But sharply rising interest rates have been filtering into auto loans. And auto sales, too, might have reached an inflection point.

After the Fed has handed out nearly $3 trillion, assets prices have ballooned, and some people have become enormously wealthy, but consumers are exhausted. Following the ancient American prescription for saintly happiness, they’d given it all they had, and then much more than they had, and they’d charged it to their credit cards and HELOCs; they shopped till they dropped. But even those consumer woes haven’t wrung the exuberance out of the stock market that reacts only to what it believes the Fed has in store for it.

What rabble-rousers, economists (those banished from the mainstream media), and bloggers have hammered on for years, a study by the San Francisco Fed finally confesses: QE didn’t do a heck of a lot of good for the real economy. The timing of the study is impeccable: the nearing end of QE – and the market mayhem that the end of QE might cause. Read.... The Fed’s Confession: We Can Avoid A Crash At The End Of QE If Everybody Believes That Everybody Believes In A Mirage....

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