Ares
15th December 2010, 02:10 PM
Some people have contested my statement that there are thousands more retail stores in the US today than there were in 2007. Yes, many mom-and-pop stores have gone out of business, but the big boys continued to expand in the face of reality. The mall-based mega-retailers dominate the retail landscape in this country. Here's a partial list of the biggest retailers in the US and their store counts.
<img src="http://image.minyanville.com/assets/FCK_Jan2011/Image/LisaCatchDEC2010/quinn1.jpg"/>
Just these nine well-known retailers alone have added 6,435 stores since 2007. Some of the stores were international, but the vast majority were opened in the US. This increase in store counts in the face of reality is the ultimate in CEO hubris. Inflation-adjusted retail sales since 2007 in the US are down 19%. This is a recipe for disaster. Americans must deleverage over the next decade. They have no choice. Their retirement savings levels are pitiful. They will be forced to stop buying junk. The boomers are leaving their high spending years and entering the forced-saving phase of their lives, whether they like it or not. Every retail CEO in the country should recognize these facts. But still, they relentlessly expand. A fool and his company are soon parted.
The lifeblood of retail expansion is same-store sales. If same-store sales do not increase, any store count expansion becomes a death march. Below is a chart of the same-store sales increases/(decreases) for November of each of the years listed for six of the largest well-known retailers in America. With a base year of 2006, I've shown what the sales level for comparable stores is today versus 2006. This includes the outstanding growth year of 2007, before the financial crisis. It should be obvious that the "Best" retailers in America have lower sales today than they did in 2006.
<img src="http://image.minyanville.com/assets/FCK_Jan2011/Image/LisaCatchDEC2010/quinn2.jpg"/>
Now for the kicker: Inflation since 2006, according to the BLS, has been 10%. Therefore, on an inflation-adjusted basis, sales for these retailers since 2006 are down by 7% to 17%.
Today, Best Buy (BBY) reported atrocious third-quarter sales figures. Best Buy is rightly considered one of the best-run retailers in America. The Apple (AAPL) iPad is a mass sensation. Consumers are supposedly spending again. The age of austerity is over according to the mainstream media. Best Buy's biggest competitor, Circuit City, went out of business two years ago. The world was its oyster. But somehow, the yellow brick road turned south.
In the US, Best Buy’s same-store sales dropped 5%, while total sales fell 3% to $8.7 billion. The company estimated that its market share declined 1.1 percentage points, losing traction in TVs and gaming software, and it also expects its share for the year to decline. By categories, US sales of consumer electronics, which make up more than a third of Best Buy’s total domestic business, fell 11%, while entertainment software sales, which make up 15% of the total, slid 14%.
It seems that the storyline being sold to the American public by the media is a load of bull. Best Buy is the first of many retailers to be blindsided by reality. Americans are running out of money. They've used up all the equity in their houses. The credit cards are maxed out. Wages are stagnant. Difficult retirement years are ahead for boomers unless they stop spending and start saving.
Best Buy's results are the canary in the coal mine. Retail CEO emperors across America need someone to step forward and tell them they have no clothes. Continued expansion in this environment will lead to financial ruin, massive layoffs and bankruptcies.
Based upon history and the hubris of many CEOs, there will ultimately be thousands of vacant, big-box eyesores dotting the landscape over the next 10 years. Ask the former CEOs of Montgomery Ward, Circuit City, or Blockbuster if it can't happen.
http://www.minyanville.com/businessmarkets/articles/retail-sector-retail-investing-retail-best/12/14/2010/id/31689
<img src="http://image.minyanville.com/assets/FCK_Jan2011/Image/LisaCatchDEC2010/quinn1.jpg"/>
Just these nine well-known retailers alone have added 6,435 stores since 2007. Some of the stores were international, but the vast majority were opened in the US. This increase in store counts in the face of reality is the ultimate in CEO hubris. Inflation-adjusted retail sales since 2007 in the US are down 19%. This is a recipe for disaster. Americans must deleverage over the next decade. They have no choice. Their retirement savings levels are pitiful. They will be forced to stop buying junk. The boomers are leaving their high spending years and entering the forced-saving phase of their lives, whether they like it or not. Every retail CEO in the country should recognize these facts. But still, they relentlessly expand. A fool and his company are soon parted.
The lifeblood of retail expansion is same-store sales. If same-store sales do not increase, any store count expansion becomes a death march. Below is a chart of the same-store sales increases/(decreases) for November of each of the years listed for six of the largest well-known retailers in America. With a base year of 2006, I've shown what the sales level for comparable stores is today versus 2006. This includes the outstanding growth year of 2007, before the financial crisis. It should be obvious that the "Best" retailers in America have lower sales today than they did in 2006.
<img src="http://image.minyanville.com/assets/FCK_Jan2011/Image/LisaCatchDEC2010/quinn2.jpg"/>
Now for the kicker: Inflation since 2006, according to the BLS, has been 10%. Therefore, on an inflation-adjusted basis, sales for these retailers since 2006 are down by 7% to 17%.
Today, Best Buy (BBY) reported atrocious third-quarter sales figures. Best Buy is rightly considered one of the best-run retailers in America. The Apple (AAPL) iPad is a mass sensation. Consumers are supposedly spending again. The age of austerity is over according to the mainstream media. Best Buy's biggest competitor, Circuit City, went out of business two years ago. The world was its oyster. But somehow, the yellow brick road turned south.
In the US, Best Buy’s same-store sales dropped 5%, while total sales fell 3% to $8.7 billion. The company estimated that its market share declined 1.1 percentage points, losing traction in TVs and gaming software, and it also expects its share for the year to decline. By categories, US sales of consumer electronics, which make up more than a third of Best Buy’s total domestic business, fell 11%, while entertainment software sales, which make up 15% of the total, slid 14%.
It seems that the storyline being sold to the American public by the media is a load of bull. Best Buy is the first of many retailers to be blindsided by reality. Americans are running out of money. They've used up all the equity in their houses. The credit cards are maxed out. Wages are stagnant. Difficult retirement years are ahead for boomers unless they stop spending and start saving.
Best Buy's results are the canary in the coal mine. Retail CEO emperors across America need someone to step forward and tell them they have no clothes. Continued expansion in this environment will lead to financial ruin, massive layoffs and bankruptcies.
Based upon history and the hubris of many CEOs, there will ultimately be thousands of vacant, big-box eyesores dotting the landscape over the next 10 years. Ask the former CEOs of Montgomery Ward, Circuit City, or Blockbuster if it can't happen.
http://www.minyanville.com/businessmarkets/articles/retail-sector-retail-investing-retail-best/12/14/2010/id/31689