Zero-Sum Retail

November was a bad month for traditional retailers. Sales at chain stores opened at least a year fell 0.3% overall from the same month a year earlier, according to the International Council of Shopping Centers. That decline was discount and online retailers' gain.

As I've warned this year, discount retailers have been cannabilizing the business of their traditional rivals. Wal-Mart (WMT - commentary - Trade Now) said sales increased 3.4%,TJX (TJX - commentary - Trade Now) reported sales growth of 8%, Kohl's (KSS - commentary - Trade Now) sales rose 3.3%, while Target (TGT - commentary - Trade Now) reported a 10.4% drop, Macy's (M - commentary - Trade Now) said sales fell 6.1%, and Nordstrom (JWN - commentary - Trade Now) said sales declined 12.1%.

More importantly for my holding in First Trust Dow Jones Internet Index (FDN - commentary - Trade Now), online sales improved. According to ComScore, Cyber Monday matched the previous all-time sales record, as the number of shoppers grew faster than the decline in spending per customer. ComScore's chairman also said that Thanksgiving Day and Black Friday "were atypically strong online sales days."

I don't believe this trend will end with the holiday season. Regardless of the better-than-expected jobs figure today, the economic consensus seems to be shifting to the opinion that unemployment will remain stubbornly high in the coming years. Discount and online retailers that compete on price will continue to pull shoppers away from brick-and-mortar shops.

Over the past five days through Thursday, FDN gained 3%, outperforming PowerShares Dynamic Retail (PMR - commentary - Trade Now), Retail HOLDRS (RTH - commentary - Trade Now) and SPDR S&P Retail (XRT - commentary - Trade Now), which had returns ranging from zero to 1.5%.

FDN trails the gains of PMR and XRT -- although it is beating RTH -- in today's early morning rally based on the labor report, but a peek inside shows job growth mainly in the employment-services sector (more than half of which was temp services) and government sectors. I'll need to see more robust pickups in the other sectors of the economy before nondiscount, brick-and-mortar retail begins to look attractive.

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At the time of publication, Dion owned FDN.

Don Dion is president and founder of Dion Money Management, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.

Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.