Monday, June 05, 2017

Retail: A Review

Unless you never go shopping {a category I would prefer to be in} you understand that the large retail chains have been imploding in the past two years as the deflationary cost pressures hitting them from both on line marketers like Amazon and big box stores like Costco have wrecked havoc with the entire industry's business model.  There have been more retail bankruptcies in the first four months of this year than in all of 2016. Retail's collapse is also the cover story in this weekend's Barron's.  {Note this article is behind a paywall.}  Barron's seems to lay most of the blame on tapped out consumers.  Their chief argument seems to be that consumer's debt burden has grown during this recovery and it is squeezing out discretionary spending.  They also point out the drag that is the over $1 trillion dollars outstanding in student loans.  I think there is something to that argument but consumer spending at stores and malls has been in trouble for the last few years.  I discussed some other reasons that I think we're seeing some of these changes last year.  These to me seem to be secular trends that began impacting shoppers earlier in this recovery, long before their wallets became a bit tighter.  I thought it might be timely to run that column again as all of it's premises remain intact.   The original post from May 23, 2016 appears below:

"It seems to have dawned on investors that based on recent retail sales folks don't much like going to the mall anymore as clothing retailers and large chain stores have been taking it on the chin.  I've listened to Wall Street talk about this for the past two weeks.  They've mostly focused on Amazon as the primary culprit.  I do think there's something to being able to sit at your desk and order a shirt as long as you know your size, but I also think there's more going on.  These are my admittedly non-scientific observations about shopping which come from listening and watching what my wife and children all seem to be doing these days.  I'm the last person who anybody could think is an expert in this field because I hate to shop and I'll wear clothing till it falls apart especially if it's comfortable.  With that being said here goes:

1.  What the web has done is educate the public on how not to pay full boat.  People are still willing to shop it seems but they're not willing to pay "retail" anymore.  Go sometime to the relatively new Fashion Outlets of Chicago Mall and you'll see what I mean.  That place is constantly mobbed.  I bought a designer sweater there last winter that would have retailed for $75 for $15.  {05.23.16: 3:45 PM. As an update to this post, I stopped yesterday at a retail outlet mall between Milwaukee and Chicago  just over the state border in Wisconsin.  We arrived there at 4:30 PM and the place was mobbed.    It was a beautiful summer day, the end of the nicest weekend we've seen since last fall and people chose to spend time at the mall.  Don't tell me they won't shop!  I think it's better to generalize that folks likely won't shop unless they get a good deal.}

2.  There is a huge market in high end second hand clothes.  Check out places like sometime or the many other similar places.  You can find plenty of people making extra cash out of selling clothing they've maybe worn once or twice on the web.  

3. and other websites offer custom and hand made items for significantly less than what you'd find similar priced pieces at a department or local clothing shop.

4.  For whatever the reason, people's shopping habits have changed.  Somebody who once went to the mall and bought three pairs of jeans now buys one and either that's it or they go home and find the second pair on line.

5.  Millennial's value experiences over shopping.  It seems that for the most part you need a hook in order to get them to the mall.  The Apple stores in malls are always crowded.  So are the fast casual lunch spots out there.  Macy's, not so much. 

Finally go read Danielle DiMartino Booth's latest column over at her blog "Money Strong".  The article titled, "Retailing in America:  Valley Girl {Interrupted}," is not only a fun read but a deeper dive into the problems affecting consumers and shopping right now."

Back Wednesday.

*Macy's, Etsy and Apple, Amazon and Costco are equites that are components of ETF indices we own in client and personal accounts.  We also have clients who own Apple as part of either discretionary purchases on their request or as legacy positions.  Please note positions can change at anytime without notice either on this blog or via other forms of electronic communication.