Retail Rout Returns (But Don't Blame Amazon)

Tyler Durden's picture

Authored by Mike Shedlock via MishTalk.com,

JCPenney announced a $62 million dollar loss for the quarter. With the announcement, its share price plunged 16% breaking the $4 barrier for the first time. Stocks under $5 are considered “penny” stocks.

This was the worst week for Retailers since Dec 2016...

Please consider JCPenney Nosedives to All-Time Low on Big Loss.

Yup. JCPenney is now a penny stock — a Wall Street term for a company trading under $5. JCPenney (JCP) said it lost $62 million in its second quarter. That’s more than a year ago. The retailer also said that same store sales — a measure of how well stores open at least a year are doing — fell more than 1% during the quarter.

 

JCPenney is the latest department store chain to announce dismal results. Macy’s (M), Kohl’s (KSS) and Dillard’s (DDS) all reported a decline in same store sales on Thursday as they struggle to compete against Amazon (AMZN, Tech30) and Walmart (WMT).

 

The massive shift in the retail landscape has led many chains to shut down underperforming stores.

 

JCPenney is one of them, announcing earlier this year it would be closing 138 stores. JCPenney wound up delaying the closings by a month though after consumers rushed to many of the stores to take advantage of the massive liquidation sales.

 

Ellison also said during the analyst call that JCPenney expects many retailers to ramp up promotions and discounts to try and lure shoppers into their stores. The CEO warned these sales may be even more aggressive than “what we’ve traditionally seen.”

Don’t Blame Amazon

Amazon is not to blame, but Amazon sure does not help either.

Retail is massively overbuilt. That’s the big problem. And it’s not just the box retailers. The fast food restaurants are all cannibalizing each other’s sales too.

Vitaliy Katsenelson accurately states It’s not just Amazon’s fault. Changing consumer habits are killing old retail biz

Retail stocks have been annihilated recently, despite the economy eking out growth. The fundamentals of the retail business look horrible: Sales are stagnating and profitability is getting worse with every passing quarter.

 

Jeff Bezos and Amazon get most of the credit, but this credit is misplaced. Today, online sales represent only 8.5 percent of total retail sales. Amazon, at $80 billion in sales, accounts only for 1.5 percent of total U.S. retail sales, which at the end of 2016 were around $5.5 trillion. Though it is human nature to look for the simplest explanation, in truth, the confluence of a half-dozen unrelated developments is responsible for weak retail sales.

 

Our consumption needs and preferences have changed significantly. Ten years ago we spent a pittance on cellphones. Today Apple sells roughly $100 billion worth of i-goods in the U.S., and about two-thirds of those sales are iPhones.

 

Consumer income has not changed much since 2006, thus over the last 10 years $190 billion in consumer spending was diverted toward mobile phones. Between phones and their services, this is $340 billion that will not be spent on T-shirts and shoes.

 

But we are not done. The combination of mid-single-digit health-care inflation and the proliferation of high-deductible plans has increased consumer direct health-care costs and further chipped away at our discretionary dollars. Health-care spending in the U.S. is $3.3 trillion, and just 3 percent of that figure is almost $100 billion.

 

Then there are soft, hard-to-quantify factors. Millennials and millennial-want-to-be generations (speaking for myself here) don’t really care about clothes as much as we may have 10 years ago.

 

All this brings us to a hard and sad reality: The U.S. is over-retailed. We simply have too many stores. Americans have four or five times more square footage per capita than other developed countries. This bloated square footage was created for a different consumer, the one who in in the ’90s and ’00s was borrowing money against her house and spending it at her local shopping mall.

Hugely Overbuilt

Malls, retail stores, and fast food restaurants are all hugely overbuilt. Analysts still have not put 2 and 2 together on what this means.

It’s the overbuilding of all kinds of retail and fast food stores that has provided the high job growth, low wage growth environment that we are in.

You can blame (or thank) the Fed for that, depending on your view.

Regardless, the expansion will come to an end at some point. And when it does, the Fed governors will not know what hit them.

Lowering interest rates further will not do a thing for the economy in this overbuilt setup, once the turn takes place.

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brown_hornet's picture

Wasn't this posted last week?

38BWD22's picture

 

 

I just hope they keep some book stores open.........

junction's picture

You mean stores like Waldenbooks, Borders, Barnes and Noble and B. Dalton?  The USA economy had no problem supporting malls and anchor stores until Paul Volcker started the destruction of the middle class with his monetary policy of raising the prime rate to over 20% before Reagan dumped him.  Volcker's replacement, the Mumbler, Alan Greenspan, got his Fed job after helping to get Social Security pensions subject to taxation above a threshold amount that was never adjusted for inflation.  While the governments at all levels were hammering the middle class with taxes, hedge fund managers had the carried interest tax loophole to avoid paying all taxes. Someone had to pay for the more than $3 trillion spent on wars in the Middle East and it wasn't the Wall Street crowd, it was the middle class.  A middle class that is now hammered with the ZIRP Fed policy that rewards incompetent CEOs good only at giving themselves bonuses (stock options) and at wiping out employee pension plans.  Eventually, people are going to realize that, bad as stagflation under Carter was, it is nothing compared to looting that has gone on from Reagan (actually George Bush, who took over after Bush's best friend's son shot at Reagan) to the present.

GUS100CORRINA's picture

Retail Rout Returns (But Don't Blame Amazon)

My response: Blame it on the meteoric rise in HEALTHCARE costs. The US HEALTHCARE system is bleeding the nation dry. HEALTHCARE costs have increased more for the average family over that last year than any other single expense. As a result, something has to go to make ends meet and it looks to be SHOPPING!!!

lil dirtball's picture

What part about the word 'Returns' in the title didn't you get?

karenm's picture

"Same store sales fell 1%"

 

Yeah, sure. Lying sacks of shit. BTW, corporations lie 100% of the time about their numbers. Its all a lie, every word of it.

 

 

11b40's picture

Yes, something very similar was posted last week, so I'll just re-post what I wrote then, and have seen saying for a long, tong time.  There is far too much retail space.  Electronics have sucked up a huge amount of retail dollars.  Consumers tastes have changed - dramatically - but much of the changes is driven by fewer discretionary dollars, as consumer wages are essentially flat for decades, while inflation in basic goods soars.  In 6 weeks, I will be 70, and have been in the retail game as both buyer and seller since 1968, when I was in college.  JCP is one of my customers.  I live their turmoil, as well as many other retail accounts, as virtually all of them struggle to stop the bleeding and figure out who they are and how to stay relevant.  Essentially, is a struggle to survive now and live to fight another day.  Many have failed; many more will fail.  This is from my last week:

She stood in the showroom staring at a wall of products.  The latest fashions for the dining room table were on display, but she did not move to pick anything up.  I was busy with another customer, but acknowledged her presence and told her someone would be with her soon.  When I approached her a few minutes later, she still had not moved, and when I asked how I could help, I thought she was going to start crying.  "I don't know what to buy", was her opening sentence.  She had been in business for 25 successful years on Main Street USA, but now she was at a trade show about to spend her money to stock her store for the critical 2nd half sales, and she no longer understood what her customers wanted.  This took place around 2002 or 03.

I started working for a Department Store in College, and was offered a job as a Buyer in their corporate office upon graduation .  I later left and started a sales agency representing multiple vendors to the retail trade in the early 80's.  I am  middleman.  This was just as China was really starting to open up as a viable supplier of more and more products, especially the kind I was selling - Housewares, Tabletop, Gifts, and Decorative Accessories.  After merging with another agency and expanding the geographical reach, we opened a showroom in America's Mart in Atlanta, which we kept for over 20 years.  Life was very good all through the 90's, and at the high point, we had almost 2500 accounts across the South.

But, in reality, change had been in the air since the 80's, as importers were replacing the goods that American factories produced.  I had 2 major ceramic lines produced in CA that went out in the mid 80's, then the domestic glass producer, who a few years before had heavily invested in state of the art high speed machinery, shut down production and sold the equipment to China.  Soon after, my plastics factory in Texas (Texasware) had to fold.  This was in the early stages of hollowing out America, and I watched the Furniture Factories and Textile Mills across the South stumble and fall one by one, along with the towns that dried up.  Other industries struggled and died, of course, all throughout the Midwest and Northeast especially.  

Retail was changing too.  The local Department Stores and the regional Mas Merchants were facing new competition from Catalog Showrooms...and from another menace creeping across the land - WalMart.  The next big change was happening, too.  The category killer Super Stores were cranking up, as were Warehouse Clubs.  The death bells were ringing for most Department Stores and Regional Discounters by now, and after them, the Catalog Showroom industry completely disappeared.  Computerization was driving efficiency for the big guys, and the smaller, or more cumbersome business models, were no longer able to keep up and stay competitive, and retail consolidation was off to the races.  I hate to think of all the bankruptcies I went through with my account base as the insanity played out.  Many of these retailers filed Chapter 11 twice, something that made me start scratching my head over banking and bankruptcy rules. 

Of course, we shifted our mix of lines to go with the times, and I made my first trip to the Orient in 1990.  No mater how much I hated replacing domestic production with imported goods, there was no viable choice if you wanted to stay in business.  So, by the turn of the Century retail was a hodgepodge of slowly dying industry segments.  The country was seriously over-stored, and had been for more than 20 years, and now a totally new way of shopping was on the horizon - the Internet.  

It was computers that allowed the efficiency that enabled the expansion of new retail channels and the grow of giant retailers.  It was also computers that sucked out the billions and billions of dollars once going to other products, just as the author correctly identifies.  It is hard to deny that changing demographics and tastes drove many retailers out of business, but it is also undeniable that tech drove many of the shifts.  When you get a computer, it is kind of like getting a pet.  The purchase prices is just the beginning.  It has to be tended and fed a steady stream of dollars - printer, ink, paper, software & upgrades, Internet connectivity, routers, cables, cameras, etc.  Then there is the Smart Phone with it's own monthly bill.

Do people's tastes change due to economic circumstances?  Of course they do.  Today's youth have no interest in fine china, crystal, or silver for the dining room.  They don't even want a dining room.  Everything has gone casual.  So, why is that?  I say it is simply that most can no longer afford life's simple luxuries and keep up with their electronic gizmos as well.  The gizmos have clearly won.  The question is, is society losing?  We have become ever more self-absorbed and course.  Kind of hypnotized as we stumble through life by a constant barrage of entertainment, advertising, and government propaganda.

Sorry to ramble on.  I could write a book about retail, but it's time to get on with the day.  I'll soon be 70, and still at it, but instead of over 2K accounts, 2 showrooms, and offices in 4 states, I now work from home and only with about 25 accounts.  

Guess what one of my strongest categories is?  "As Seen On TV" products.  Cheap shit for suckers.  That is America today.

SamuelMaverick's picture

Wow !  Great post 11b40.

 

Maverick

Drop-Hammer's picture

Yes, very sad.  My millenial daughter, like most young women today, does not wear dresses or anything feminine and seems to have no interest in getting married and having children or a house-hold/family to take care of.  Very sad.  But, she does have the latest Apple Icrap.

Angus McHugepenis's picture

I don't hang out here much more but when I read your post I just had to log in. The Tylers better give this one the best post award for the year, if not the entire existence of the ZH website.

Now I gotta get back to my room before the nurses realize I've escaped.

11b40's picture

That's a "huge" compliment, AngusMc. Thank you.

BrightBlueSkies's picture

11b40,

Thank you for taking the time to post your story. You really should write a book. I turn 64 next month, still working, and while I am not in retail I have watched the slow motion fall of ordinary people my age into a lower level of income/lifestyle while earning 'more' and wondering why everything got so cheap and worthless. Worse, very few people have noticed nearly every product today has gotten smaller either in quantity or size and the word 'quailty' has become an utterance to fool the gullible.

The_Juggernaut's picture

I'm going to mortgage my home and buy some jetskis. Gotta do my part.

itstippy's picture

Get some $200 sunglasses and $80 swim shorts to go with them.  Also a pair of $75 boat shoes and a $50K pickup to tow them around.

Show the world your a "fun" guy with good taste and lotsa bucks.  

skinwalker's picture

Right now I feel like burning it all down and starting over.

Hkan's picture

Real news. Refreshing! Best of all no pic of the fake Clown.

itstippy's picture

He's not a "fake clown", he's the real deal.  That was our choice in the election: an utterly corrupt self-important hag or an utterly egotistical orange clown.  I voted clown over hag, but had no illusions about what I was voting for.  At least he's entertaining as Hell.  Are you not entertained?

Iskiab's picture

Healthcare costs haven't inflated that much, I'd look at the cost of gas instead. The cost of gas also directly effects the cost of everything else in the economy and squeezes consumer goods/retailers margins more so than anything else.

It's one of those weird situations where based on market capitalization profitable oil companies are good for the stock market but bad for everything else, including the overall economy. It's one of those things that's a basic concept in economic theory, that lets you spot frauds who claim to be economists because they say profitable oil companies are good for the country.

Richard Chesler's picture

Clearly you don't have health insurance or go to the doctor much.

kenny500c's picture

Or buy gas, it is roughly half the price it was in 2008.

Seasmoke's picture

But creeping higher. Especially with the public parasites increasing the tax per gallon taxpayer in many states

Still Losing Money's picture

not where I live. it may be ess than just a few yers ago but it is still MUCH higher then 08

jin187's picture

This is why it pays to subsidize and deal with certain companies upfront rather than subsidizing the consumer, and allowing the companies to set the price. Everyone needs fuel, food, medicine, housing, and healthcare. We should be using the government like a consumer union to negotiate better prices, and stop supply from being cut just to increase prices during times of low demand.

The worst thing we can do is what were doing now, which is writing the end consumer a check for necessities through government assistance. When the government sets the limit on rent at $1000 a month for a housing subsidy for a family of four, then the lowest rent for a 4-person apartment will be $1000. If a typical family of four gets $500 in SNAP every month, you know that food providers will make sure it takes $500 a month to feed a family of four.

Healthcare and education are the poster children for this problem. These products have endless demand, and the providers know that consumers will literally break themselves to get it, and government will step in to help them should they fall short. There's no incentive for them to strive for efficiency, so they just charge whatever it takes to keep the behemoth rolling, knowing that someone, somewhere, will pay for it.

GooseShtepping Moron's picture

I'm glad the Tylers finally got around to realizing what a sideshow Amazon is, after months of sucking Jeff Bezos' dick. 

Animal Mother's picture

Ah the irony. The empty mall in the picture is in my former hometown. I moved away years ago because the place was a shit hole, and now, in my northeast little town, the mall is on shaky ground. I told a few friends that having lost 2 of 3 anchor stores, it wont be open in another year or two and they laughed at me. Then I remembered riding the elcalators at that mall in the picture. 

LibertarianMenace's picture

These mid to late 1970s malls all used the same architect I see. Just like the bankers they used to finance it.

Anderson Coopers Gerbil's picture

Go to the mall and run a gauntlet of dindus. No thanks

arby63's picture

People in general have gravitated to online options thanks to the non-educated scum that roam the streets.

hooligan2009's picture

health care spending looks like it is the main culprit for mall closures, and within that, the cost of drugs

https://www.ama-assn.org/about-us/trends-health-care-spending

spending looks to have averaged around 4.25% for the seven years ended in 2015, making a jump of one third from 2008 to 2015 - way above inflation.

in other words, consumers were spending 3.2 trillion dollars (15% of gdp) on health care in 2015, up by 800 billion dollars from "just" 2.4 trillion in 2008.

small wonder that our 435 + 100 + state governors and other politicians are unwilling to agree a repeal of obamacare. they get way too much money paid directly to their bank accounts from the 800 billion being made by the health care industry.

my bet is that state and city taxes have increased by similar amounts over the last 8 years as well.

not by the heinous amounts being price gouged by the health care industry and politicians, but still given state and local taxes is about the same as federal taxes at around 3.5 trillion each (7 trillion in total federal, state and local taxes = 35% of gdp in aggregate) i would bet that fed taxes haven't moved much, but state/local taxes are up by around 25% over thel ast 8 years = 700 billion

compare that to increases in nominal personal income over the last 8 years of what? zero for the bottm 90% (and masses of increases in corporate "profit" from qe) and the consumer has been taxed via health care and again by states/local taxes to the tune of around 1.5 trillion bucks (less an offset from niminal personal income growth from promotions/seniority increases in local brrger and barrista bars).

call it a trillion dollars less or 5% of gdp.

that is the price of libtard socialism and spending other peoples money.

drain the fucking swamp already.

 

Deep Snorkeler's picture

Amazon employs 100,000 robots,

and produces 55,000 per year.

Foxconn is making 10,000 Foxbots/year.

Your future is being robotized and

no mall on Earth will save you.

Mom-n-Pop stores will be in museums

and real productive jobs will be auctioned off

to the highest bidders.

 

SeaMonkeys's picture

Good points.

This is how higher education is able to be so expensive. The jobs that add increasing returns value require education. Universities don't have to teach substance like they used to because they control the education market. A good education today really just means a degree from a "good" school. You pay for a small amount of substance and a lot of social networking via fraternities and the piece of paper at the end.

If education were free like in our parents' generation, then universities would have to actually teach substance and the job market and economic/industrial/trade policy would have to conform to a larger part of the population educated in real subjects.

Keeping education in the high cost realm enables the country to continue down the path it has been going. No national policy that wants to create a healthy and strong country. Just a large pool of ignorant and stupid consumers who don't want to know what they don't know.

CJgipper's picture

The rent is too damn high.  Period.

 

Employees need a MINIMUM of 3k/mo to live because rent is 1500 bucks MINIMUM here.  Stores can't pay employees enough to live on while paying their own rent.  

 

Cheap money sunk into real estate is destroying our entire economy.

NoWayJose's picture

I cannot think of a single reason to walk into a JCPenney store...

Bai Suzhen's picture

But once you are there, I bet you can think of a lot of reasons to walk out.

overmedicatedundersexed's picture

in a funny way, I don't blame the JU's ..we should lock up those that are entrusted with our legal system from Judges and DA's to DOJ and AG's..all the regulatory agencies who never ever stop the JU run banksters and corps..we need a non JU lawman real bad...somebody needs to go to jail..otherwise the JU's will own everything.

so don't blame the JU people who take advantage of a corrupt .gov..the JUs have no morals, but it is not their job to see fairness done.

.gov has failed the people and so many progessives are blind to it..

SeaMonkeys's picture

Zero Hedge should post more articles that recognize the loss of disposable income for Americans and the rise of the cost of living. The two are related and not explored as much as they should. Healthcare is a huge cost that is just highway robbery for average people. The reasoning that should go into making policy decisions for healthcare have been hijacked by idealogy that manipulates the electorate into doing what the elites want. 

Housing is the worst. Who can afford to buy a house in an economy that is increasingly becoming a "gig" economy? And renters often pay 50% or more. So much for the population having equity in America.

Education is a luxury that pays off if you are lucky enough to get into the Ivy Leagues. State schools were free in my parents' generation. 

These 3 big ticket items eat up most working people's incomes. Good for milenials who don't care about conspicuous consumption like earlier generations.

As a consumer society, the circular flow of money and its velocity depend on the income and spending of the population. From the 70's on to 2008, that flow depended not on wage growth but on credit. That has changed. The economy has been able to stay afloat and enough people, Republican and Democrat, believe the mainstream news that convinces us that we are not frogs sitting in water that is slowly coming to a boil.

The markets' activity seems to me to be largely made up of the traders, not the long investors. When and if the crash comes and enough traders are hurt, then we will see the news tell us a different story. Bernanke's QE kept the narrative where the elites want it and put all of the increase in wealth since 2008 into asset inflation, not productive investment. The bottom 80% of the country is just hanging on. 

National economic news is skewed to the financial markets. As long as they keep enough people happy, the news will put a positive and/or opportunistic spin on everything. The real economy is nothing more than a human interest story.

Kidbuck's picture

Housing, education, and healthcare should all be getting cheaper with tech advances and economies of scale. We just can't see the Fed's inflation via free money to the govt and banksters and wall street not only not keeping prices steady but raising them every day. Plus having the govt fuck the housing loan markets, the rental markets via Section 8, the food markets via SNAP and farm and sugar and milk subsidies, etc.,

CRM114's picture

Cheaper for the same level of service, yes. But all of those claim to be providing a higher level of service, hence the real price increases.

'Claim' being the operative word.

 

We also need to remember that the longer healthcare keeps people alive, the more costs increase, under current theraputic regimes.

zipit's picture

There are "millennial-want-to-bes"?

LibertarianMenace's picture

For the ancients out there,  I expect that some wish the "In Time" odometer be turned back.

Haitian Snackout's picture

Well I stopped going to malls over 10 years ago. And when I moved to Nevada it didn't make sense to drive 100 miles to Vegas just to shop. Much easier and far less costly to buy online and save the time and gas. But JCP was one of the last places that I still went to. At least they had a good selection of Levis and their buyers understood the need for a more complete range of styles and sizes. So if they are on the ropes, stick a fork in it. Mall retail is done. Maybe there will be some exeptions like the Legends K.C. Kansas one but it seems their time has passed. And they were done with or without AMZN. I have no idea who goes there now, but I would guess people who can't figure out anything better to do in their spare time.

Stan Smith's picture

Degradation of disposable income is the largest culprit for most things regards these threads.    Housing, food, health insurance take up a bigger slice of most folks pie every month.   And it's not really slowing down.

I'll also point out that if most retailers would take on 20 to 30% less space their books would look a whole hell of a lot better.   Maybe not irrational exuberance ,   but enough that most investors would figure the numbers make more sense.   But for decades both commercial developers and bankers convinced most retailers that "bigger is better" (sounds like housing for awhile, doesnt it) and now no one, not even the big boys can afford it.

For as big as the bubble that popped for housing was,  the one for commercial space dwarfs it.    We're "over spaced" commercially (nationally speaking anyway) by an enormous order.   It wont shake out the same way the housing crash did, but commercial developments turning into ghost towns will be even more and more common than they are now.

Bai Suzhen's picture

Recently, in a city near me at the mall (either a JCP but might have been Macy) one of the store cosmetic kiosks organized a "gibbs me dat" free lipstick event.  From the news accounts, a line of diversity is our strength women queued up, and soon vibrancy broke out.  The police had to be called in order to break things up.  Now, tell me why I would ever want to go to a mall to shop?

Drop-Hammer's picture

Zactly.  The post's author failed to mention how much niggers and beaners have ruined the shopping experience over the last 25 years.  Thanks Bill Clinton, George W. Bush, and Obamohammed and Co. for flooding the U.S. with so much vibrant diversity to f*ck up anything that was once pleasant.  BTW, it was the jews who monetized/commoditized/corporatized/corrupted our economy such that we are at where we are today.  Thanks jews and your goy politician butt-boys for gutting our economy and sending jobs/factories/manufacturing overseas to help support foreign economies.  Of course, you Christ-killers got and continue to get the skim for all of that, less the scraps you give to our political corruptocrats to facilitate it all.  

jin187's picture

Insert "Boogeyman" in place of all the slurs, and it reads the same, and sounds just as shallow. If all the blacks and latinos disappeared tomorrow, you know what would happen? The corrupt government would just find new boogeymen and strawmen for the uneducated, and unthinking masses to direct their hate.

Not to mention, if you really think the forces of corruption just now took root with our latest sets of politicians, you fail at history. The current state we're in is the sum of over 200 years of corruption. This country has been on the road to hell every since the SCOTUS's power grabbing, law-flouting decisions of the late 1700's. Our fate has probably been sealed for good since the Jackson presidency. Everything since has just been window dressing. A song and dance designed to advance the cause of elites without the average person taking notice.

Drop-Hammer's picture

Pretty sure that if all of the niggers, beaners, and jews were gone, then I would just have a Coke.  

CRM114's picture

I got carded twice buying alcohol in supermarkets last week. I'm in my fifties and look 10 years older. It's f#cking moronic.

Received correct directions to items - 1 out of 5.

Shopping Experience, my @ss.

 

p.s. Vermont still appears to be sane; kudos.

itstippy's picture

I'd go if I knew I'd get to see diverse women in a vibrant cat fight over free lip gloss.  That would be awesome!

Recently the "youths" in our local mall got into a food fight at the food court, which would be a hoot to watch, but the mall didn't annouce the event ahead of time.  I also read that a woman got caught shoplifting $8K worth of merchandise from Victoria's Secret.  Slinky women's bloomers must be mighty pricey.