As most of you know I’ve been incredibly bearish this holiday season, and have been lamenting my bi-furcated market theory at retail for well, over a year now. Today’s news on Sears $SHLD and K-MART should come as no surprise, and is a crystal clear illustration of how the middle class–and their dollars –are vanishing from middle market retail. The consumer that “aspired” to shop at SEARS (yes–they existed), has now traded down to Wal-Mart $WMT, Kohl’s $KSS, Dollar Tree $DLTR, Dollar General, $DG Dollar General, Target, $TGT as they get squeezed out of the market by 8.6% unemployment, an anemic housing market, unease about tax policy, and general economic uncertainty.
Meahwhile, there is a dirty little secret about those killer Black Friday sales – and no retailer in their right mind would admit it, but: More sales mean more returns. That’s just a simple formula at retail. In fact, the NRF is reporting a record $462.8 B in returned goods this holiday selling season, an +4.25% vs. ly. Why?
Consumers got retail fever with all of the Black Friday hype and promotions, and spent their wad that first weekend. When reality sets in and you’re sitting on the floor looking at all those receipts, buyer’s remorse sets in and BOOM! RETURNS. It will be interesting to see the ratio of returns redeemed for cash vs. merchandise. This added to the fact that much of the holiday spending was being rung up on consumer credit cards – not the most encouraging of signs.
But, savvy retailers can always capitalize on an emerging trend. Macy*s, $M have broadened and LOCALIZED their footprints, they are able to “catch” that fringe consumer that also had to trade down from Saks, $SKS, Nordstrom $JWN, and the like. And, at the top of the consumer pyramid? The LUXURY consumer. Yep–it’s lonely at the top. Lux retailers like $LVMH, Tiffany $TIF, Burberry $BRBY $PPR, (GUCCI) , Hermes $RMS , and $AAPL (YES, I consider APPLE a luxury brand),are thriving due to the Global thirst for luxury goods, as Russia, India, and China get in on the act.
But what about rising consumer confidence? Well, digging in to last week’s numbers tells me that the picture is not all that rosy: employers are just FIRING at a slower rate, not creating the jobs that Americans so desperately need. And don’t forget the intense seasonality surrounding the unemployed this time of year. Many of those individuals just quit searching for employment and hunker down with friends or family until the New Year. Watch January filings. My hunch is they increase substantially.
Lastly, be mindful when tracking the success or failure of the Holiday selling season, that one need look at November and December TOGETHER. Black Friday does not a season make. Consumer shopping behavior mirrors and hour-glass, with a big pop on Black Friday, then a lull historically for the next few weeks until “Super Saturday,” the last Saturday before Christmas. Look, I want the consumer AND the economy to come back swinging just like the next blonde, but I AM a realist, and I want you to have all the facts –even the ones “they” don’t want you to know. My prognosis? I anticipate a lukewarm holiday sales number–better than last year–but not by much.
-Talented