Ah, the 80s. It’s safe to say many Generation X-ers have certain movies inexorably etched in their minds. 1983’s Valley Girl, featuring an as-yet-to-be-discovered Nicholas Cage as ‘Randy’ is surely one of them. While there is little doubt Director Martha Coolidge found inspiration in Shakespeare’s Romeo & Juliet, there is equally little doubt that the highly successful film’s most ardent fans never made the connection. The plot is simple enough: perfectly popular high school girl from the oh so right side of the tracks falls for the ultimate bad boy from the equivalent of San Fernando Valley’s oh so wrong side of the tracks.
In one particularly memorable scene, Julie, played by Deborach Foreman, approached her bizarrely former hippy father for guidance in navigating the closest thing to an existential crisis she’d ever experienced, as in falling head over heels for the taboo Randy. Before Julie can begin to explain said dilemma, her father cuts her off with, “That’s easy. Take it back and get the more expensive one. The expensive ones always fit better.”
No words could better capture the vapid materialism that put the 80s on America’s pop culture map. Teenage girls, armed with daddy’s Amex, lived to troll the malls and set the next fashion trend, self-actualization be damned.
It’s safe to say, mall owners and the stores within, pine for those halcyon days that preceded Amazon’s forever altering of the American retail landscape.
The dichotomy between the most recent batch of retailers’ earnings and the Commerce Department’s monthly retail sales data have set off a firestorm of a debate: Is the American consumer hitting a rough patch or have they embraced the world of e-commerce for good rendering traditional brick and mortar trends so yesterday?
As was widely lauded, April retail sales were so robust as to be characterized as “blockbuster” by the economists at Bank of America Merrill Lynch (BofA). Not only did headline retail sales jump by 1.3 percent, the so-called ‘control group,’ which excludes autos, gasoline and building materials and feeds into gross domestic product (GDP) math, “surged 0.9 percent.” In the, “But wait, there’s more! category,” the February and March data were revised up to such an extent BofA raised its estimate for second quarter GDP by a half a percent to 2.5 percent as well as that of the first quarter, to 0.8 percent from 0.5 percent.
For all of the strength in the data, prudent market veterans will remain skeptical until they see May and June’s data given the near consensus among retailers that spending slowed into the second quarter, the opposite of what the data suggest.
Of course, the weaker the consumer is, the more they rely on finding the lowest possible price for what they can buy. Enter Amazon. E-commerce sales rose 2.1 percent in April, building on a 3.7-percent gain in the first three months of the year, which itself was twice that of the fourth quarter’s pace.
Within the category of e-commerce, electronics sales reigned supreme at the expense of clothing sales, which major retailers across the full spectrum from Kohl’s to Macy’s to Nordstrom’s confirmed with their weak earnings reports.
But the full story goes deeper than weak brick and mortar sales. It comes down to a cultural paradigm shift best reflected in what today’s teens don’t say. Shrieking “Gag me with a spoon!” and so many other forgotten catch phrases has been replaced with rapid fire texting, “OMG!” And, gone too are the brands LIKE Calvin Klein and the long list of must-haves followers displaced by the next generation iPhone.
BofA does a great service every month, aggregating and reporting its proprietary credit and debit card spending records availing to those who read its research a bounty of insights. As subsequently validated in the formal data, BofA saw a smart rebound in overall spending in April. And it wasn’t just steeper prices at the gas pump; electronic sales surged while spending at restaurants held steady.
As for clothing, sales of wearables sank 2.9 percent last month. Dig in deeper, though, and you’ll see teen and young adult apparel were the weakest of the bunch, spending nosedived 9.2 percent. On May 5th, as if foreshadowing what was to come, teen retailer Aeropostale filed for Chapter 11 bankruptcy protection. It followed a slew of its competitors.
This type of news must come off as something of a mystery to Gen-Xers who can to this day still recite the lyrics of Madonna’s 1984 smash hit, Material Girl. No teen retailer on their watch would have dared had slumping sales, much less go belly up. How else did ailing (today) Gap establish itself as a powerhouse of (yesteryear’s) posterity?
As for what’s to come, the biggest question is whether the nascent signs of rebounding consumption in the formal data will have staying power. Leave apparel aside for a moment and consider reports from two retailers that have a birds’ eye view on nondiscretionary purchases, as in necessities.
Home Depot might not jump immediately to mind, that is until you factor in Americans staying put in their homes for appreciably longer than they historically have. That trend has translated into the need to maintain those homes, which has led to boom times for Home Depot and its competitors and their shareholders. It was thus with trepidation that the comparable-store sales decelerated to 4.3 percent in April from 6.7 percent in March and 10.2 percent in February.
Things weren’t much better down the road at Target whose same store sales growth of 1.2 percent was, well, off target. CEO Brian Cornell lamented the “increasingly volatile consumer environment” and the “slowdown in consumer trends.” The sum total of sales at the giant retailer amounted to 5.4 percent less than they did over the same three-month period last year. Say what you will about publically traded companies tinkering with their earnings; the top line doesn’t lie.
Depleted purchasing power certainly corroborates the most recent run of layoff announcements. U.S. companies announced 65,141 job cuts in April, according to Challenger, Gray & Christmas’ latest tally. That brings the total for the first four months of the year to 250,061, the highest since 2009 when the economy was still in recession.
Notably, it wasn’t just the oil patch. Retailers and IT firms have also been busily writing up pink slips. Though politicians are loath to accept the reality of the math, the imposition of new overtime rules on top of higher minimum wages can only lead to more bloodletting in headcount.
While undoubtedly speaking on behalf of its constituents in its capacity of a mega-lobbyist, it was still befitting that the National Retail Federation characterized the new OT rules as “a career killer.” Companies will quickly calculate the easiest solution to preserving margins, as in reclassifying employees as hourly from salaried. And voila, incomes will take yet another body blow. This evolving practice will enable employers to better track actual hours worked.
As if on cue, households report that they are increasingly discouraged about the prospects for rising incomes at exactly the same time as a separate data set reveals a spike in credit card usage. It’s no coincidence that these moments tend to occur when paychecks disappear, which the Challenger data seem to suggest is happening with greater frequency.
Evidence is mounting that the unemployment rate has bottomed for the current cycle. That can only mean one thing – voters will be angrier yet by the time Election Day arrives. As things stand, only those populating the tony top decile of earners have seen their incomes rise over the past decade. Rising unemployment will give new meaning to kicking the American worker while they’re still struggling to get off the ground.
As for the future of retailing in America against that troubling backdrop, it’s safe to say that Simon Property Group, which owns or has interest in over 230 high-end retail properties nationwide, has a solid take on what’s to come. In its most recent annual report, Simon noted that only three of its top 10 tenants of 1993 exist today in the same form as they did then.
The severity of the shift suggests something beyond the ‘Amazon effect’ is at work. The key is marrying stagnant wages to the cultural backlash against the conspicuous consumption glorified in the Valley Girl era and to varying degrees beyond. Do this and a clear picture emerges, one that explains why families still stroll the strongest malls but simply cannot spend well LIKE really I just have to have it LIKE. So they window shop, have a meal at the mall, and head home using their smart phones to buy what they can on Amazon Prime, of course.
Perhaps the missing link is what most Fed officials appear to not grasp, as in wage growth, or the lack thereof. It would be amusing if it wasn’t so sad.