Every four weeks or so, I pile into my Zipcar (after my garage fees went up to more than twice my car lease payments, I finally got rid of my car) and take three hours of my day to battle New York City traffic and the kill-or-be-killed parking competition by Yankee stadium to stuff my little car full of Bounty and Charmin from BJ’s Wholesale. For years, this has been the necessary evil routine of my life.
Until this year.
Somehow at the start of this year, I stumbled upon an Amazon competitor called Jet.com, which specializes in selling just the type of inglorious household supplies that we all need. Jet.com has a devilishly smart model that actually lowers the price of an item in real time as you order more units. So I gave it a shot. I ordered my typical couple of dozen 2-ply rolls of Bounty for less money than at BJ’s, including free shipping.
The next day, when the order arrived and my doorman hand-delivered the purple box to my apartment, I knew that I would never shop at BJ’s again.
The story of retail in America is like that old Samuel Taylor Coleridge line from The Rime of the Ancient Mariner, “water, water everywhere nor any drop to drink.” Everywhere you look, American consumers are finally starting to spend money. Indeed, last Friday’s Retail Sales report was a blockbuster surprise as sales shot up by 1.3% versus the -0.3% eyed. Yet despite the uptick in spending, retailers have been posting woeful results and their stocks have been hammered into oblivion. From Macy’s to Nordstrom to Kohl’s — no one has managed to escape the end of the mall rat.
When I was young and the Internet did not exist, the mall was the only entertainment in town and kids flocked to it like moths to a flame and spent endless hours cruising, flirting and most importantly, shopping. But now millennials could care less about the mall or shopping for that matter. The new generation finds the virtual world much more stimulating than the real one. And as for life’s necessities — well, Amazon and Jet.com take care of that for less money and infinitely more convenience.
|Retail as we know it is dead.|
We may now be reaching that key inflection point in our economy where internet retailers will overtake the brick-and-mortar world. You can see it coming much like the way the airplane superseded the ship for transatlantic travel. Eventually brick-and-mortar stores will simply become venues for amusement much like cruise ships are now.
Retail, of course, will never fully disappear. People will still want to occasionally touch and feel products and discover new items. But that process will be much rarer and will result in far smaller volumes of turnover than the market realizes. Despite the recent beat-down of the sector, there will no doubt be bargain hunters who will flock to the old name retailers in hopes that those once-grand businesses will revive themselves.
That is likely to be a big mistake. Retail as we know it is dead. The anchor department store model is Kodak in waiting. The smart retailers will consolidate, leaseback and will likely keep only 30% of their most productive properties. It will be a long and wrenching process and it is only just beginning. That’s why any rally in the retail ETFs like XRT or RTH is simply a chance to short more at better prices.
To paraphrase F. Scott Fitzgerald, there are “no second acts” for retail in America.
Central bank involvement and manipulation in markets seem to get more ridiculous by the day. In Japan, for instance, the fund-management industry just finished creating special “physical and human capital” Exchange Traded Funds for the Bank of Japan to buy.
The ETFs are supposed to include only shares of companies that do things BOJ policymakers approve of, such as raising wages, boosting capital spending or demonstrating “a commitment to truly understanding and practicing governance at an international standard.” It took the industry months to come up with the ETFs, which the BOJ said it would start buying back in December … before the products even existed.
Target (TGT) joined the parade of pain in the retail sector, reporting first-quarter sales that missed analyst forecasts and forecasting weaker earnings going forward. The “bull’s-eye” retailer said it faces “an increasingly volatile consumer environment,” and will make $1 to $1.20 per share in the second quarter – well below expectations of $1.36 per share.
Beginning December 1, millions more Americans will qualify for overtime pay thanks to new Labor Department regulations. Salaried workers who earn up to $47,476 per year will soon be eligible for overtime pay, a significant jump from the current threshold of $23,660 – one that hasn’t changed since 2004. Administration officials estimate the move will boost wages by $12 billion over the next decade, though industry and business groups just say employers will cut hours and full-time work to compensate for higher labor expenses.
In the political arena, Bernie Sanders won the Democratic primary in Oregon while Donald Trump won on the Republican side. Sanders and Hillary Clinton fought a very tight race in Kentucky, with Clinton apparently winning by a margin of less than 1 percentage point.
The Money and Markets team