Thursday, November 06, 2008

More On Retail Sales

As mentioned earlier, the retail sales reports this morning were largely weaker than expected, or at least weaker than consensus estimates. It is clear the the consumer is reigning in his and her purchases, so we should expect to see both weaker retail sales as well as weaker economic data in the near future.

There were only a few standouts in the reports this morning. BJ's Wholesale (BJ) posted +10.2% growth in same-store sales in October, but Costco (COST) posted a -1.0% decline. Children's Place (PLCE) also showed gains of +4.0%, as well as Wal-Mart (+2.4%).

One of the common themes above is value and discounts. BJ's is a big wholesaler, and PLCE is a place where you can get kids clothes at discounted prices (I wonder if I can get my wife to go there?).

By contract, traditional department stores, which are often sell full priced items, fared poorly. To wit, Nordstrom's (-15.7%), Saks (-16.6%), and Macy's (-6.3%) all posted healthy declines. And teen retailers like American Eagle (AEO) and Abercrombie (ANF) also posted declines for October of -12.0% and -20.0%, respectively. Ouch.

Americans aren't used to seeing this, given that consumer spending held up fairly well during the last recession from 2001-02. Low interest rates spurred rising home prices back then, so consumer still "felt" like their net worth was growing.

But this time around the severity of the credit crunch is serving as a wake up call to many of the need to reduce debt. And for the first time in ages, the average consumer may once again be starting to reign in spending and actually think towards increasing their savings.

Its hard to say how long this will last, as we all know that Americans in general have a higher propensity to spend than most other nations. My guess is that when consumers feel that the housing market has bottomed, and the stock market begins to look past the recession, households will once again loosen the purse strings. But it will be a tough ride in the interim.


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