With everything that is supposedly going in the right direction right now, the US economy alone in booming out jobs and GDP, the last word you would expect to find attached to analysis of retailer performance during the Christmas season is “dismal.” The final numbers for the year have yet to be tallied, but the anecdotes have been trickling out and any praise is at best measured. It wasn’t supposed to be this way:
Super Saturday – the last pre-Christmas Saturday, which fell on Dec. 20 this year – failed to make up for spotty performance this season. That included a disappointing Black Friday, the day after the U.S. Thanksgiving holiday that is typically one of the busiest shopping days of the year.
“The past weekend will not save this holiday season,” said Craig Johnson, president of the retail and consumer product-oriented private equity fund Customer Growth Partners. “But combined with online sales, it would certainly save the year from being a dismal one.”
One step above dismal is not booming. In fact, it may turn out dismally after all, however, in that the only reason there was any topline growth was due to the drastic discounts offered by retailers so as not to remain awash in inventory for yet another year (mini-cycles are formed this way).
Most retailers offered an additional 20 to 30 percent off on top of 30 to 40 percent discounts on a wide range of products, Reuters found during a series of visits to three dozen stores in Chicago over the weekend.
While that sounds great for media commentary about “spending”, the reality is that businesses must engage in sustainable, profitable activities in order for the economy to gain an actual healthy track. The fact of over-inflated inventory, based undoubtedly on the continued expectations and proclamations of “economists” for that “boom” period, is a net negative as what doesn’t sell easily becomes an anchor on future activity.
The initial indications from retailers themselves about that fact are downright dismal:
Consumer-discretionary firms have been notably downbeat about their fourth-quarter performance, with 24 in the S&P 500 saying their earnings will be lower than expected. The gloomy tone comes as investors have been betting that some of those stocks will benefit from the sharp decline in oil prices during the holiday shopping season.
The sector, which includes auto makers like Ford Motor Co., internet retailers like Amazon.com Inc. and retailers like Gap Inc., has issued the highest number of warnings since FactSet started tracking the data in 2006. That’s also far worse than the 14 companies that on average have warned about their profits each quarter over the past five years.
Booming payroll expansion and a massive “tax-cut” in the form of lower oil prices adds up to the most/worst retail profit warnings since 2006?
As is the case now with what is already shaping up as the third mini-cycle since the 2012 slowdown, there is not improbable chance of a total breakdown. At some point, the lack of actual progress will conspire with these mini-cycles to create a confluence of negative factors which are too much for the economy to bear; a breakdown of activity from which there will be no positive bounceback this time.
With the state of credit and funding markets in almost total bearishness, I wonder how close we are to that point. The American consumer is still, unfortunately, the world’s economic engine in this disoriented age, and with the rest of the world bracing for something far worse the “dismal” occurrence of this shopping season is beyond unwelcome but all too consistent.