After the worst year-over-year Christmas sales season since 2008, retailers better start smelling the coffee or lose a lot of gains they've seen in recent quarters, warns Keith Fitz-Gerald of Money Morning.
Initial US retail sales figures released on Wednesday showed sales growth for the holiday season was the worst since 2008.
According to MasterCard SpendingPulse, holiday sales posted a paltry 0.7% increase against expectations of a 3% to 4% gain. That's below the same period last year, when sales grew at a 2% pace.
Analysts looking for a convenient excuse have been quick to blame Hurricane Sandy. But in reality, there's something else much bigger at work here. That's why I'm actively hunting for shorts in the retail sector right now, and will be for much of the first quarter next year.
Following the holiday data and some moderate earnings that incorporate the extra week this quarter, I simply don't think hardcore retail companies like the The Gap (GPS), American Eagle Outfitters (AEO), The TJX Companies (TJX), and Abercrombie and Fitch (ANF)—which are up 71.3%, 47.41%, 32.2%, and 50.67% respectively year to date through Christmas Eve—will be able to sustain these big up moves.
In fact, there are several real reasons why I think holiday sales were down and consumer spending will continue to drop into 2013, making select retailers good short candidates:
1. People simply have less money in their pockets, and economic
uncertainty is keeping it there.
The undeniable casualty in this entire mess is consumer confidence. Never mind the "recovery" or the fiscal cliff, the data clearly shows the average American is girding for four more years of economic insecurity.
For example, current consumer confidence figures reflect lows we haven't seen since last June, so it's only natural that consumer spending falls as well.
Unfortunately, this is not a situation limited to the United States. As I noted in a recent Fox Business appearance, I see this trend in other countries where wary consumers are also trying to hang on to what they have.
The other key takeaway here is that inflation is working its way through the system. I know the government says it doesn't exist-or my personal favorite, it's "under control"-but who are they kidding? The thousands of investors I've spoken with over the past 12 months tell me they're getting pinched on all sides.
I guess if you live in Washington and work for the government, you can ignore the official statistics, but out in the real world where people have to pay for everything from food to medicine to fuel and much more, it's a very different picture.
The cost of everything from health care to the food we eat is going up by 10%, 15%, or even 20% a year. Here in Oregon, for example, my breakfast costs 60% more than it did a few years ago, and my son's tuition has shot up. Our health-care premiums have also risen by double digits.
And I know what we're experiencing is not an isolated situation-the dollar quite literally doesn't go as far as it used to.
2. Numb consumers are shifting to non-traditional sales outlets in an
attempt to make each dollar they do spend go farther; this is skewing the
The SpendingPulse data is supposedly all-inclusive and covers retailers in key categories like electronics, jewelry, furniture, and other holiday- related segments. According to MasterCard, it's also representative of various forms of purchasing, because it includes cash, checks, and, of course, credit card purchases.
I am not so sure this data set is what it's cracked up to be. I've noticed a shift in purchasing patterns that reflects consumers patronizing non-traditional outlets like craft stores, farmer's markets, and online versions of non-traditional retailers like Etsy.com, which bills itself as the world's most vibrant handmade marketplace.
Even if many of these outlets are included in the SpendingPulse data, they end up being dropped because they don't meet the "same store" criteria-meaning that statisticians may not include them because the data being measured must come from stores open at least a year in an effort to smooth volatility.
There's also the rise in coupon redemption and the shift to value retailers to consider. It's no longer essential to have the absolute latest and greatest when it comes to shopping.
Consumers, for example, may conclude that an older-generation iPad is just as good as a brand new one. So, that likely drops the aggregate value of purchases, because last year's models may be clearance-priced or simply not worth as much as the top of the line.
And that speaks to something else at work. Many value-conscious consumers are increasingly content to shop at club stores or at retailers with broadly defined product sets that cross historically significant boundaries. Examples include grocery stores that now integrate consumer staples, or department stores like Wal-Mart (WMT) and Target (TGT) that now include food items.