Retail is the second-worst-performing sector in the S&P 500 Index. The sector’s essential proxy, the Retail SPDR (NYSEARCA:XLR) is down nearly 12% on the year.
The good news: It’s almost Christmas, the biggest retailing season in the U.S.
The bad news: That might not make much of a difference.
What’s going on in the sector? There’s more good and bad news…
Last week’s Department of Commerce release on retail sales told us that October produced 0.1% growth in retail sales, well below estimates that had the number closer to 0.4%.
Perhaps more distressing was that over the last 12-month period, sales were up a paltry 1.7%, which is below the wage and personal income growth levels over the same period.
In other words, with their newfound money, which may include wage increases and whatever lowered energy costs flow to consumers’ bottom lines, their next trip probably isn’t to the mall.
Any question marks about that conclusion were answered with dismal revenue and earnings announcements last week from Macy’s (NYSE:M) and Nordstrom (NYSE:JWN), both of which followed on the heels of a rather downbeat forecast earlier in the quarter by retailing giant Wal-Mart (NYSE:WMT).
The miserable performance of the XLR isn’t a surprise, given how badly some of its component pieces were treated after those announcements.
Macy’s is down nearly 40% year to date after taking a $7 per share haircut in one day, while Nordstrom dropped nearly $10 per share over the same period.
Even those who forecast decent growth, like Kohl’s (NYSE:KSS), are hurting, evidenced by KSS’s 30% year-to-date drop. Kohl’s had the audacity to leave its full-year forecast in place, and might just buck the trend to growth and a stock rally by Christmas, but it won’t get back as much as its lost.
Heck, even big e-tailers are feeling the burn. Alibaba (NYSE:BABA) is down just over 25% on the year although its getting a bit of a bump after posting absurdly huge revenues for its “Singles’ Day” event in China.
So what’s going on? Simply stated, the incredible level of competition across the board is driving prices lower, with margins following.
And as much as we may not want to say it, lots of people—and I mean LOTS of them—would rather shop from home.
It’s easy, it’s safe (and don’t think given what happened in Paris over the weekend that isn’t a factor), you can shop prices for as long as you want and, in the end, get anything delivered in as quick a time as Amazon (NASDAQ:AMZN) can get it to you for a price you’re willing to pay.
By the way, did I mention that in the middle of this retail mess, AMZN stock is up over 100% year to date?
Or that Target (NYSE:TGT), which has grown its internet retailing—indeed, its entire digital strategy, to cater to its consumer base—is only down 5% on the year?
Target’s strategic direction, outlined by Target.com president Jason Goldberger, in internetretailer.com, is clear in its vision of competing with Amazon on a platform of using technology to simply be a full-service, better retailer.
Is it working? Though Target delivered a strong Q3 earnings report this week, there’s a slowdown in digital sales. Though digital sales grew 20 percent, it’s down from Target’s forecasted 30% growth.
Retailers’ struggles aren’t over—not by a wide margin.
Continued concerns over a possible Fed rate hike in December (which weigh on those fearful of a stock pullback), and those pesky millions of online shoppers who have no interest in fighting the crowds at the mall could make it a tough quarter.
If you want to make a difference, get out and shop this Christmas.