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.
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.
"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.
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.
All the best,
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,
Uncommon Wisdom Daily