"Retailers Are Running Out Of Time": Channel Checks Show 13% Collapse In Traffic

While the market is treading water, with the S&P modestly in the red, offset by some strength in the DJIA, retail stocks are broadly lower, with 83 of 91 components of the S&P 1500 Retail Index trading in the red, led by Tuesday Morning, Caleres, Express, Shoe Carnival, Francescas as BBG notes.

Some observations: according to Wells Fargo's Ike Boruchow, it’s “increasingly clear that retail is under significant pressure" adding that store traffic remains weak (likely to get softer this week due to Easter shift), while markdown rates are not only elevated on an annual basis, but also getting sequentially worse. He concludes that "retailers are running out of time” to reach elevated Q1 numbers as consumption is failing to rebound.

In a separate note, Cowen's retail team conducted channel checks and found that March week 3 traffic declined 13.3% vs -2.4% y/y, “slightly worse” than Cowen’s estimate down 11%-13%, vs last week’s -10.6%, citing national traffic devices.

And then there were various overnight news, among which:

  • Movado reported 4Q sales that missed estimates and issued forecast for year EPS and sales that also trailed
  • Caleres cut to nuetral vs positive at Susquehanna (PT to $31 from $40); cites disappointing 4Q results, forecast
  • Target announed plans to open 43k square-foot small-format store in NYC’s Herald Square
    • Macy’s, whose flagship store is also located in Herald Square, is down as much as 2.7%, to lowest intraday since Feb. 1
    • For Macy’s, TGT’s entry could put some pressure on apparel business given TGT’s strength in signature categories, Bloomberg Intelligence analyst Poonam Goyal says in email
    • She adds that Macy’s challenges “are far beyond TGT’s entry,” traffic at other non-flagship locations must turn, which appears “a difficult task given move to online”
  • EBay Plans to Guarantee 3-Day Delivery for 20m Eligible Items
  • Consumer sell ideas include AEO, BBBY, DDS, GCI, GIII: MKM managing director and chief market technician Jonathan Krinsky
  • Amazon’s Clothing Success Could Doom Department Stores and Malls: Fox Business
  • House Ways and Means Committee Chairman Kevin Brady hopes a tax reform bill will be ready for markup this spring: Bloomberg
  • Fly reported M Science issued Street-high 1Q rev. forecast for Wayfair (up as much as 1.9%)

In short, whether due to displacement (from online vendors), due to concerns about border tax, or simply because the US consumer's plight - despite the recent surge in Trump=induced animal spirits - has not changed one bit, the pain for US retailers continues, and as a result, the outlook for malls and other retail-associated secondary industries will remain bleak for the foreseeable future.

Finally, a quick look at "the next (original) big short", i.e., CMBX, shows that recent negative trends are accelerating to the downside.