For retailers, what counts is how sales are relative to budget/plan, and they are below budget almost everywhere.
Several points need to be made:
- Amazon is killing the industry. Amazon's (AMZN) retail sales in the U.S. are expanding at a $10 billion annual rate. The company's retail efforts are a public service. It makes little or no money on them and with Amazon Web Services it will never need to do so. It is now even hurting the auto parts industry. CEO Jeff Bezos is constructing 30 distribution centers in the U.S. At the peak of its growth, Walmart (WMT) added one such center every two years. Near term, the AMZN threat will only get worse. It is now the nation's leading apparel merchant. Few would ever have predicted this. There may be nothing it will not sell.
- The problem is not the American consumer. Things are reasonably fine. Yes, insurance and other prices are rising, but employment is good and wages are rising. In Las Vegas, as an example, it is clear we are at or near full employment. Consumption in the U.S. by foreigners, which counts in GDP, is awful. The U.S. dollar is strong. This is killing the luxury sector, especially in Miami and New York City. At the margin, this is impactful. On the other hand in NYC, while shopping at Christmas for luxury goods you may be able to hear English in the stores. In the last few years it has been difficult. It will also be less crowded, but for out-of-town guests, hotel prices may get back down to earth.
- The weather has been good, and that's awful for retail. September was the warmest in 35 years and October was probably close. In Chicago, at least until Nov. 15, temperatures will remain above 55 degrees. This is killing the apparel business and hurting other businesses as traffic for shopping is down. Fitbit's (FIT) warning on Thursday tells the tale. This also will affect natural gas and heating oil demand.
- Housing may be peaking. Sales of durables (as seen at Whirlpool (WHR) , PPG (PPG) and others) are probably peaking, as is the housing turnover that drives them. In Miami/Dade County, the epicenter of housing speculation, we are back to a three-year supply of condos at the current rate of sale. Some bad paper is undoubtedly out in the market and banks are tightening credit. As one banker told a friend of mine, "Money is cheap unless you need it."
If one looks at the weekly new high list of stocks, the consumer sector is suffering. There are few consumer stock 52-week highs and many at new lows. Much of this malaise is now beginning to be priced into the sector, where multiples are well below historic ranges.