from
(snip)"November Retail Sales came in weak, completely nullifying the sensationalist numbers circulated regarding Black Friday
Best Buy's (BBY) spectacular flame-out wasn't the only retail disappointment this morning -- the Commerce Department said that November retail sales rose just by 0.2% versus a consensus estimate calling for a 0.6% gain.
That painted an ugly picture for retail overall, but it made an even more important point about the sensationalist headlines around the great margin-sucking 'holiday' that is Black Friday: They can now be disregarded.
If you rewind the clock a few weeks, you may remember hearing the National Retail Federation boasting of a 16% year-over-year sales gain for the four-day weekend following Thanksgiving, and ShopperTrak saying that retail sales rose 6.6% on Black Friday itself.
But thankfully, it appears that investors weren't suckered into bidding up retail stocks in reaction to those estimates.
Since the close of trading on the Wednesday before Thanksgiving, the Retail HOLDRS (RTH) ETF has returned 4.1% vs. a 7.3% gain for the Dow Jones Industrial Average (^DJI).
But let's look forward.
It's obvious that old-school, brick-and-mortar retail is in a tough spot. Aside from a lousy job market and high commodity prices, there are two major structural problems that I can't get out of my head:
The first is Amazon.com (AMZN), which is growing like a weed due to its strategy of driving revenues at the expense of margins. It could hit the $50 billion revenue mark this year, and hit $100 billion within a couple of years, taking an even bigger chunk of consumers' wallets with it.
And secondly, the US has already been carpet-bombed with chain stores, meaning there isn't much room left for new stores from the likes of Target (TGT), Wal-Mart (WMT), and Home Depot (HD), meaning growth rates tend to just barely surpass nominal GDP, if at all.
The good news for investors (and bad news for employees) is that a lot of big-name chains have been shutting down locations this year -- Gap (GPS), Abercrombie & Fitch (ANF), Lowe's (LOWE), Pacific Sunwear (PSUN), Borders (BGPIQ.PK), GameStop (GME), etc.
However, it's still tough to assess when exactly the broad base of publicly traded retailers will shrink to the point where the cutthroat environment crystallized on Black Friday cools off.
Until then, the industry will remain populated with value traps"(snip)
The take-away from Best Buy and the November retail numbers in general appear to be as follows ...
Black Friday 'door busters' did draw in customers ... but those customers were primarily interested in deeply discounted items that provided near zero profit margin for the retailers.
US consumers AREN'T increasing their holiday spending as 'expected' ... presumably because of both lack of remaining credit plus rising costs of 'necessities' in the face of stagnant or falling after-tax incomes.
Online retailers like Amazon are gaining market share ... partly the result of strategically reduced Amazon price levels / profit margins, but also arguably partially due to rising state sales tax rates, high gasoline costs etc. adding to the 'total costs' of shopping at a local brick and mortar retailer.
The author also includes an implied warning of 'value traps' i.e. that present stock share valuations of mainstream brick and mortar retailers may not accurately reflect their short term drop in 'expected' sales volumes, on top of reduced margins, on top of rising costs of doing business from a 'brick and mortar' location ( i.e. rising energy costs, property taxes )
This article of course totally bypasses the upscale 'luxury' retailers ... who are reportedly experiencing record sales and profit levels.



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