30% of US Consumers now provide 'all' Retail Spending..
from
(snip)"Zerohedge has brought attention (in their own very colorful fashion) to a Pimm Fox interview of Howard Davidowitz, chairman of Davidowitz & Associates Inc. on Bloomberg. It is well worth the 12 minutes of your time. Here are some choice quotes form the interview as excerpted by ZH:
“I am not surprised by the strength of retail sales, because i knew that 30% of consumers are responsible for retail sales, and these 30% did much better because of the performance of capital markets. I don’t think it is indicative of anything going forward. I don’t think the economy is going to get any better. If you look at our fiscal and monetary policy, we went two trillion in the hole last year. Two trillion… to produce this… and unemployment went up to 9.8%! We’ve spent two trillion we’re printing money we’re going bananas. Our balance sheet, we’ve got $2.6 trillion on there, and what;s on there government securities, and MBS.”
…”If interest rates go up a point Bernanke’s bankrupt. Everything he’s bought is underwater. All the MBS are underwater, the whole country is underwater.”
The serial defaults that are coming from Europe anywhere between now and 2013 will indeed spike interest rates. Review my latest posts on the topic, or the Pan-European Sovereign Debt Crisis series for more info than you can digest in a week.
Online sales have to lead you to question the whole retail selling strategy. We have 21 square feet of selling space for every man woman and child in this country. We already have double of what we need. With the explosion of online sales, what happens to all these retail malls and shopping centers which are marginals? Huge changes are going to be taking place as people continue shopping online…. In the end what do you do with the retail space…This is going to be a huge question for retail in the next ten years, that’s why Walmart is starting to build smaller stores, that’s why Walmart is building more overseas than they are building here. It’s going to be the biggest retail change that we’ve ever seen.”
Landlords better start figuring it out pretty quick because they already have occupancy problems, rent problems and everything else right now. I don’t think the CRE problems are fixed by any means. That’s why we are going to close hundreds of community banks going forward, we are going to close hundreds more. Those CRE debts are coming due and they will not be able to be rolled over. We’ve got lots of problems still coming up in the banking system, and the problems in the real estate issue is here for a long time.
Other ZH excerpted observations:
» Walmart is 10% of US retail sales, has 150 million customers, and its stock it is down 6 consecutive quarters;
» Sears is the largest department store in America: “their stock is terrible”
» Best Buy had a huge earnings miss
» Toys’R'Us loss increased last quarter
» A&P filed bankruptcy
» Loehmann’s filed bankruptcy
» Charming Shoppes is going to close 100 stores
» TJMaxx just liquidated AJ Right
I’ve covered this topic left and right, since 2007 after warning that GGP was insolvent and bound to crash. I got into a tit for tat with the CFO who called my research “garbage”. A year after that comment, they filed for bankruptcy. (snip)
As I read it, the gist of Reggie Middleton's analysis begins with the FED printing up 2 trillion dollars out of nowhere. Those newly printed dollars were then used to purchase 'toilet paper' securities from distressed banks ( at full face value ). The banks in turn took the newly printed dollars and, instead of loaning them out to individuals and businesses, instead purchased stock shares. These 'proprietary trading' stock purchases caused the price level of stock shares to rise. As the top 30% of American earners are more or less the only ones who were major owners of stock shares that are free to be sold ( i.e. owned outside of gov't sanctioned retirement accounts ), it was the top 30% of American earners who profited from the FED's 2 trillion dollar money printing exercise along with the major banks.
As a result, it is the top 30% of American earners who are responsible for the VAST majority of the supposed 'good news' regarding retail spending through the Christmas season. However, as these Americans are 'upper middle class' or outright 'rich', the bulk of the dollars they spent were spent on 'luxury' goods ... from 65 inch TV's to designer clothing / accessories to jewelry to high end new cars. This resulted in 'record' earnings level for companies servicing the 'luxury' goods sector ... i.e. Tiffany, Louis Vuitton, Porsche, etc.
Unfortunately for the other 70% of American earners who could not participate in the FED's 2 trillion dollar money printing exercise, they saw stagnant ( or declining, due to rising state and local taxes ) paychecks, while also seeing the 'flip side' effect of the FED's money printing marathon ... namely being forced to pay higher prices for all 'necessities' from food to gasoline to health care / insurance. This in turn left the other 70% of American earners with far fewer family budget dollars left to spend on 'non-essential' items. Accordingly, suppliers and retailers who serve these 'lower middle class' and 'working poor' Americans i.e. WalMart, ToysRUs, Best Buy etc. are experiencing a decline in profits.
Dancers may want to ponder the question of whether their club customer base falls in the top 30% of American earners, or caters to the other 70% 'regular guys'. If it's the latter, it's highly probable that future dancer earnings potential is likely to follow the trend of WalMart, ToysRUs, Best Buy etc.
The side issue raised by Reggie Middleton is that Commercial Real Estate owners now face an 'abyss', because their mainstream commercial tenants who primarily cater to 'average' customers are experiencing reduced business levels thus reduced profits ( with some hovering on the edge of bankruptcy ). Between the online retail purchasing opportunities that are now available, and the fact that 'average' customers have far fewer dollars available to spend on anything that isn't a 'necessity', it's thus very probable that CRE landlords are going to see rising vacancy levels. In many cases, elevated vacancy levels ( i.e. no rent payments coming in as retail stores close ) will translate into outright delinquency on the landlords' CRE mortgages. As such, the banks that underwrote these mortgages are now major risk of loss ( since these mortgages for the most part don't have Fannie / Freddie as a gov't backstop ). And the lion's share of such CRE mortgages are held by regional / local banks.
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Re: 30% of US Consumers now provide 'all' Retail Spending..
i believe it.
also, i think it's worth noting that a lot of the vacant retail spaces were built on hopes and dreams. just like the housing bubble. just like the tech bubble years ago. business wasn't really all that amazing then either. it was just creative bookkeeping toward the top and "the secret" style blind optimism among smaller businesses. i also think that there's still money to be made, but people aren't being creative (or smart). they've been starting the businesses they want to start, without being realistic about the market that exists, or how to properly market it, or the importance of a good location. and frankly, i think those people deserve to go under. i feel so mean saying it, but it's true. no one deserves success just for being there. this isn't elementary school. you don't get a gold star just for showing up. i think a lot of consumers who aren't spending much would probably spend more if they had something they wanted to spend it on. the only interesting new products to come out in the last few years have been really pricey. the affordable things are all just more of what folks have already got. there isn't much innovation going on.
Re: 30% of US Consumers now provide 'all' Retail Spending..
in fact, Ambrose Evans Pritchard of the UK Telegraph lays out some interesting details in a new report ...
from
(snip)"There is a telling detail in the US retail chain store data for December. Stephen Lewis from Monument Securities points out that luxury outlets saw an 8.1pc rise from a year ago, but discount stores catering to America’s poorer half rose just 1.2pc.
Tiffany’s, Nordstrom, and Saks Fifth Avenue are booming. Sales of Cadillac cars have jumped 35pc, while Porsche’s US sales are up 29pc.
Cartier and Louis Vuitton have helped boost the luxury goods stock index by almost 50pc since October. Yet Best Buy, Target, and Walmart have languished.
Such is the blighted fruit of Federal Reserve policy. The Fed no longer even denies that the purpose of its latest blast of bond purchases, or QE2, is to drive up Wall Street, perhaps because it has so signally failed to achieve its other purpose of driving down borrowing costs.
Yet surely Ben Bernanke’s `trickle down’ strategy risks corroding America’s ethic of solidarity long before it does much to help America’s poor
The retail data can be quirky but it fits in with everything else we know. The numbers of people on food stamps have reached 43.2m, an all time-high of 14pc of the population. Recipients receive debit cards – not stamps -- currently worth about $140 a month under President Obama’s stimulus package.
The US Conference of Mayors said visits to soup kitchens are up 24pc this year. There are 643,000 people needing shelter each night.
Jobs data released on Friday was again shocking. The only the reason that headline unemployment fell to 9.4pc was that so many people dropped out of the system altogether.
The actual number of jobs contracted by 260,000 to 153,690,000. The “labour participation rate” for working-age men over 20 dropped to 73.6pc, the lowest the since the data series began in 1948. My guess is that this figure exceeds the average for the Great Depression (minus the cruellest year of 1932).
“Corporate America is in a V-shaped recovery,” said Robert Reich, a former labour secretary. “That’s great news for investors whose savings are mainly in stocks and bonds, and for executives and Wall Street traders. But most American workers are trapped in an L-shaped recovery.”
It is no surprise that America’s armed dissident movement has resurfaced. For a glimpse into this sub-culture, read Time Magazine’s “Locked and Loaded: The Secret World of Extreme Militias”.
Time’s reporters went underground with the 300-strong `Ohio Defence Force’, an eclectic posse of citizens who spend weekends with M16 assault rifles and an M60 machine gun training to defend their constitutional rights by guerrilla warfare.
As it happens, I spent some time with militia groups across the US at the tail end of the recession in the early 1990s. While the rallying cry then was gun control and encroachments on freedom, the movement was at root a primordial scream by blue-collar Americans left behind in the new global dispensation. That grievance is surely worse today.
The long-term unemployed (more than six months) have reached 42pc of the total, twice the peak of the early 1990s. Nothing like this has been seen since the World War Two."(snip)
Re: 30% of US Consumers now provide 'all' Retail Spending..
update from Bloomberg
(snip)"Rich shoppers are driving an increase in consumer spending, bolstering a recovery that masks reluctance among less affluent Americans to join in.
Sales are up at Tiffany & Co. and Coach Inc., buoyed by demand for $6,000 diamond pendants and $1,200 leather handbags as a stock-market surge pads the wallets of the wealthy. At the other end of the economic spectrum, Wal-Mart Stores Inc., the world’s largest discount retailer, reports “everyday Americans” are living paycheck to paycheck as they await an improvement in job prospects.
“The heavy lifting is being done by the upper-income households,” said Michael Feroli, a former Federal Reserve economist who is now chief U.S. economist at JPMorgan Chase & Co. in New York. “They’re the ones benefiting the most from the stock market rally, and they’re spending.”
The uneven progress in household expenditures, which account for about 70 percent of the economy, helps explain why Fed policy makers likely will keep interest rates near zero and complete a second round of Treasury purchases. Unemployment averaged 9.6 percent last year, the highest rate since 1983, even as the expansion gathered speed.
Consumer purchases reflect bigger gains among high-income households and “financial pressures on those of more-modest means,” according to minutes of the Fed’s Dec. 14 meeting. Feroli estimates the top 20 percent of wage earners account for about 40 percent of spending, while Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York, puts their contribution at closer to 50 percent. (snip)
(snip)Poverty Threshold
The Census Bureau estimates the poverty threshold for 2010 was $22,314 for a family of four.
“It’s striking,” said Dean Baker, co-director of the Washington-based Center for Economic and Policy Research. “Most of the rest of the country is still suffering while the wealthy seem to be largely insulated. You would think they wouldn’t have all that much to complain about. Instead they’ve had unending criticism for the Obama administration.”
Sentiment data reflect the stock-market gains. The Conference Board’s consumer-confidence index for households making more than $50,000 a year climbed in December to a seven- month high, while the gauge fell for income groups in the $35,000-$50,000 and $25,000-$35,000 ranges.
Rising foreclosures and declining real-estate values indicate middle- and lower-income households will remain cash- strapped. The asset value of property held by Americans fell by $649 billion in the third quarter to $16.6 trillion, the Fed said Dec. 9. Home prices may drop as much as 11 percent through the first quarter of 2012, which would be 36 percent below their 2006 peak, according to a Dec. 8 Morgan Stanley report.
‘Uneven Recovery’
“It’s an uneven recovery at this point,” Maki said. “We’re seeing more of a rebound at retailers serving upper- income households.”
Coach, the largest U.S. maker of luxury leather goods, in October raised its North America sales forecast for the rest of the year. In anticipation of holiday-season sales, the New York- based company increased inventory by 36 percent, including its line of Sophia satchels that range from $298 to $1,000. The company will report second-quarter results on Jan. 25.
Tiffany will accelerate store openings for 2011, Chief Financial Officer James Fernandez said on a Nov. 24 conference call. The New York-based jeweler on Jan. 11 forecast profit from continuing operations of as much as $2.88 a share in the year ending Jan. 31, up 11 cents from a November projection and exceeding the $2.79 average estimate of analysts surveyed by Bloomberg.
Rising Wine Sales
Total U.S. wine sales rose 4.1 percent to $9.32 billion for the 52 weeks ended Dec. 11, according to the most recent data from Nielsen Co. The fastest-growing segment was wine priced at $20 a bottle and higher, with sales gaining 11 percent. Wines under $3 declined 0.6 percent.
There’s been “a greater bounce back in the more-affluent customer,” said Clarence Otis, chief executive officer of Darden Restaurants Inc. He should know: His Orlando, Florida- based company owns both casual-dining chains such as Red Lobster and Olive Garden as well as the upscale Capital Grille steakhouse.
The industry is witnessing a “changing guest mix,” Andrew Madsen, Darden’s chief operating officer, said on a Dec. 21 conference call with investors. “Less-affluent guests who tend to have a lower check are reducing their restaurant visits.”
Want, Not Need
Family Dollar Stores Inc., the second-biggest dollar-store chain in the U.S., fell 8.8 percent to $44.99 on Jan. 5, the most in more than two years, after its second-quarter forecast fell short of analysts’ projections. Purchasing decisions are “primarily based on want rather than need,” Howard Levine, chief executive officer of the Matthews, North Carolina-based company, said on a conference call that day.
The jobless rate among Americans who haven’t graduated from high school -- likely those in low-paid positions -- exceeded unemployment among people with at least a Bachelor’s degree by 10.5 percentage points in December, near the record 10.9 point gap set in September.
“The paycheck cycle is still pronounced” for Wal-Mart’s typical customer, Mike Duke, the Bentonville, Arkansas-based company’s chief executive officer, said on a Nov. 16 conference call with investors. “Financial uncertainty still weighs heavily on everyday Americans.” (snip)
'Serious professional dancers' may want to pay special attention to the comments regarding the 'changing guest mix' made by the CEO of Darden Restaurants ... as the very same economic concept arguably applies to strip clubs !
Extending the basic principles of the article, very upscale clubs that appeal to the same upscale customer base that patronizes Tiffany's are likely to see stable or increasing customer 'activity' as well as increased spending per customer. Suburban clubs that appeal to a middle class customer base are likely to see a marginal decline in customer 'activity' as well as a marked reduction in spending per customer. And blue collar clubs are likely to find their customer spending situation becoming downright ugly.
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