The Disturbing Death Rattle of Retail

Have you been to a shopping mall lately? It’s not what it used to be, that’s for sure.

A lack of foot traffic, the absence of once-popular specialty stores, and poor customer service are just a few of the recent observations I made during my last visit to a once-mighty local mall.

This observation isn’t just mine, however. It’s been reflected in malls throughout the country, and via the many store closures and bankruptcies in the retail industry.

Then there is the price of retail stocks.

Not all retailers are created equal, of course. But I will note here that the benchmark Exchange-Traded Fund, the SPDR S&P Retail ETF (XRT), has recently come under a lot of selling pressure.

XRT is down nearly 5% year-to-date. Now, that doesn’t seem too horrible. Not until you realize that stocks in the S&P 500 are up nearly 5% in that same time frame.

So, what’s the deal? Are we about to hear the disturbing death rattle of retail?

A recent cover story in Investor’s Business Daily, "Death Stalks Retail Stocks, But Hope Lives On," took up the complex subject of retail’s future.

I thought the piece was interesting, as it laid out many of the prevailing issues facing the retail industry. It also offered insight into how the sector could evolve in the years to come as it tries to survive.

Most importantly, in an age where Amazon.com (AMZN) rules the retail roost, the article asked whether traditional retail stocks were "just flat-out doomed."

Look at this price chart of the online seller of everything, AMZN, vs. the world’s biggest brick-and-mortar retailer Wal-Mart (WMT). You’ll see what investors have emphatically stated over the past decade.

WMT has gained a little over 55% in the past 10 years. But look at AMZN … which is up more than 2,000% in that same time frame.

Here’s the money quote from IBD:

No analyst interviewed for this story was ready to declare the physical store dead. But retail’s wounds still run deep, and there are almost certainly too many stores in the U.S. Many stocks of top chains, while not as low as during the Great Recession, are rolling over into pronounced downtrends. The weak stock action creates short-selling opportunities for investors who believe the worst for retail is yet to come.

When you have a mainstream publication talking about the short-selling opportunities in a sector, well, that sector is in serious trouble.

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Still, the retail segment is big. Some estimates put the industry at about $4 trillion. That, according to some, means companies that sell things in physical stores are still viable.

Per IBD:

"There’s no way Amazon becomes a $4 trillion e-tailer in 10 years," said Jeff Roster, vice president of retail strategy at IHL Group. "That’s just not going to happen."

The solution to the "retail ice age," as I’ve heard it called, could be finding new ways to use existing retail space.

According to analysts cited in the IBD article, retailers need to reduce their real-estate footprint, and also take a "hybrid approach" to stores that maximizes floor space while also accommodating online orders.

Analysts say vacant stores could be used as warehouses and pickup spots for online orders. Or, in existing stores, a smaller floor space might be used to display merchandise, while a larger back area would serve the e-commerce end.

Macy’s (M) and Target (TGT) are already considering such a store layout. Target has said 55% of online orders are completed at its stores, potentially strengthening the case for the strategy.

While these so-called hybrid stores are an interesting concept, Amazon can play that game too. Indeed, the online retailer has already opened "pop up" stores in various locations. It also has its sights set on opening grocery stores.

Yet for traditional retailers facing an existential crisis, the key to survival may be a combination of building out their online infrastructure while also making their stores "cool" again.

That’s a tall order. But it’s one that many retailers must fill if they want to survive.

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Speaking of ETFs, the SPDR Gold Trust (GLD) gained 0.7% today and is also rising here in the after-market. Here’s our resident small-cap mining expert, Sean Brodrick, with why you need to pay attention to this action …


Mining for Money

Gold ETFs Back Up the Truck
By Sean Brodrick

Have you seen what’s happening in the SPDR Gold Trust (GLD), the world’s biggest physical gold ETF?

It sure looks to me like investors are backing up the truck. They’re using the GLD to add to gold positions in a big way.

Recently, the gold held by the GLD soared to 838 metric tons. That’s 26,942,330 troy ounces.

And it’s not just the GLD. Swiss firm MKS reported Tuesday that, globally, ETF holdings of gold rose by 180,000 ounces. That’s the largest gain in two months.

This is happening even though economic optimism in the U.S. and Europe are at or near record levels.

Related story: Optimism About U.S. Economy Hits Post-Recession High

Partly this has to be gold’s price action. It seems to be breaking out. Investors are positioning for that.

Also, inflation continues to heat up. Investors are getting ready for that, too.

And they can probably see the same long-term, big bull cycle in gold that I can.

But really, the latest short-term factor in gold is rising geopolitical tensions. On Tuesday, I told you how President Trump rattled the markets with talk of taking care of the "problem" that is North Korea.

Tensions aren’t simmering down. The Russians don’t seem to like U.S. finger-wagging over Syria, either.

Who knows what the next day’s news will bring?

I’ll tell you this: If gold ends this week above $1,262, that’s a breakout in price terms … AND a close above gold’s 200-day moving average.

And if that happens, that’s a whole new ballgame. Technical traders will buy-buy-BUY!

Do you think money is pouring into the GLD now? Just wait and see what happens if we get that weekly bullish close.

Be ready!

All the best,
Sean


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I want to know what you think, so if you have a comment or question about today’s Afternoon Edition topic, or any of the topics we cover, just leave me a comment on our website or send me an e-mail.

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Geopolitics kept a lid on stock prices today. It’s also a holiday-shortened trading week. (The markets are closed on Friday.) The broader S&P 500 fell 0.4%.

• Gold hit its highest level since November. The yellow metal rose 0.3% to $1,278 per troy ounce.

• Fitch affirmed the U.S.’s top "AAA" credit rating. It also raised its GDP growth outlook for the nation, to 2.3% in 2017 and 2.6% in 2018. Fitch also sees two more quarter-point interest-rate hikes this year and four next year.

• Job openings hit a seven-month high. The Labor Department said the number increased by 118,000 in February to 5.7 million.

• Financials fell in front of tomorrow’s before-the-bell earnings reports from four big banks. The Financial SPDR (XLF) slid 0.8%.

Good luck and happy investing,

Brad Hoppmann
Publisher
Uncommon Wisdom Daily

Your thoughts on “The Disturbing Death Rattle of Retail”

  1. Brad, regarding your article on the death rattle of retail, allow me to offer an additional point. In my opinion the large retailers who are struggling now did most of the damage to their portion of the marketplace to themselves. Most consumers will endure many of the shortcomings you mentioned for a fair price on a quality product. What they won’t tolerate is consistently being charged 4 or 5 times the actual value of a product or telling the consumer something is on sale below the “everyday price” and then increase the “sale” price of that product. Consumers are presently punishing retail by voting with their feet when the better course of action would have been to complain in writing to company executives. If they aren’t able to arrest their decent into oblivion both they and the consumer will have lost. Left to on line companies like Amazon, the consumer won’t be able to both physically examine a product and get it when they need it and convenience will be gone.

  2. Why is jnug not reacting to the price action in gold??? It acts leveraged on the down side but not on the up side???
    Thanks clement

  3. Retail. I’m coming up on half a century. Even in our small town I have seen nearly 30 competitors which included flips, flops, and real crashes. I always have a ten year plan. I expect customers with much less money expecting much higher quality food. The driving force is health supported by internet based knowledge. I also expect that there will be a very large gray economy of food banks, free stores, community gardens, and guaranteed income checks. That customer will not be a customer anymore.

  4. It’s no secret that America is getting older and not younger. Each generation from the Baby Boomers on have been smaller in size than the previous generation. That’s the first mark against ever expanding retail sales. I believe the second mark against retail is what the previous person said about the Help and their overall lack of commitment and or knowledge. The third is Retail is it’s own worse enemy. Before and after the fallout of the Great Recession, Retail has not catered to older America. Some of us are big people and the sizes keep getting smaller. I’m a 2X T-shirt kind of guy and the last batch of 2X shirts feels more like an XL. My Wife has had this problem for years. Rather than raise the price, garment makers and Retail cheat by down sizing and charging the same. Pretty soon the 5X-6X people have to drop out and pay for specialty clothing or make their own. Likewise, the styles for older Americans look like flour sacks with no real style; all of the style is enjoyed by Teenie Boopers; 20 to 40 somethings but Older Americans [50 years older and older] are SOL on the styles. Why bother shopping with JC Penny, Sears, or Macy’s anymore when all they offer is basics and style less clothing? Or some stores like Kohl’s have a limited offering for Older Americans and have just enough to be dangerous and not serious in selling to Older Americans. And just try to find wide shoes and boots in any Retail Store that sells shoes; pretty hard to come by especially for women. The fourth and final thought is those constant sales that are meaningless. I’m sick of getting daily emails from Macy’s one day sale and now everybody seems to be doing it. Like we are all waiting at our computer all day to save a few measly bucks. But have you noticed that the so called sales are now just the every day price? Big Deal.

  5. hi brad,

    it is becoming increasingly obvious that the syrian gas story is just that, a prefabricated, planned ‘false flag’ event that puts assad and the russians in a bad light. many experts in the western sphere, including ex cia heads and other notable experts in chemical substances as applied to war, are declaring that the gas was not sarin but a mixture of chlorine and other noxious stuff. if the gas had been sarin those rescue workers would have died within minutes of ‘handling ‘ the victims because they were not wearing the appropriate clothing and gloves for the job. from evidence now to hand the isis mob had many hundreds of drums of the stuff taken from the american
    military in iraq a few years ago and transported to syria to an isis base then taken to a well known isis stronghold and the whole exercise broadcast so that the syrian planes bombed the base, not knowing of the gas drums therein. a high wind blew the massive gas cloud, resulting, downwind to a village where the killings took place. western press had the full ‘story’ within a very short time. amazing. a set up ? of course. assad has no reason to bombard his own people because he had full control of the country anyway except for pockets of isis which his military is till trying to root out. if this is a cause for ww111, then blame your western press and the clinton, soros mob..oh and that idiot mccain. many americans want him put away. he is apparently a very dangerous man. and considering the past 77 years of bombing worldwide by the american airforce, maybe its time for you guys to be inducted to the lovely world of overhead bombing, to hear the sounds of boom, boom and the shocks and horrors of it all. your country (mainland) is one of the few to not experience overhead bombing.
    there are many countries who would love to see it happen. you can betcha that when it occurs the elites and the clinton mob will have departed. this is not hate mail, merely a critical analysis of the world as it is and the feelings of many people towards america.
    russia has been told that their country is badly situated because it sits right smack in the middle of your military bases in eurasia. amazing! i wonder if you have seen any russian or chinese ships in san diego harbour or cruising in lake mitchigan lately. if its ok for the us navy to cruise around the black sea or the south china sea threatening everybody and anybody surely the russian or any other navy has the right to do similar? and america has virtually declared war on syria by firing those missiles into that country. if that is ok for usa to do so then maybe russia can start sending missiles into sweden or poland or any other country. putin is quite right in saying that the americans should not have done that. well cheers from oz

  6. WalMart has offered online shopping for quite some time — and had on-line grocery shopping available before Amazon.

    Amazon may be the glamour stock, but WalMart may be the real bargain.

  7. Back in the day, retail stores hired competent help who actually helped customers. We answered questions, brought merchandise to dressing rooms, etc. Now days if you can’t find an item, or need a question answered, often there is no one to help. If you go on Amazon you get a full description, measurements and sizes, etc. In the past, the help was trained to put the customer first and to be pleasant. Shopping was more social then, when customers often had favorite sales people that they developed retail relationships with. Nowadays a shopper often gets a surly attitude. This isn’t the whole reason retail is suffering, but it is part of it.

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