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Retail's Uphill Battle Keeps Getting Steeper
If shopping feels a little less crowded these days, you're not imagining it. Mall storefront vacancies edged up 10 basis points in the second quarter to 9%. At strip malls, the same 10-basis-point rise carried vacancies to 10.9%. For malls, that's the most dead space seen since 2000. For shopping centers, it's almost as bad as the 1991 implosion, when vacancy rates reached 11%.
Allegedly, we're in a recovery, but here's the really scary part: it's not like it's just a few underfunded and outmatched tiny retailers closing shop. Some major players that could probably tough it out until better days have decided to not even bother trying. Take a look at some of the most eye-opening store closure decisions of late.
IN PICTURES: Consumer "Fads" That Haven't Faded
Biting the Dust
The 27 Movado stores locked their doors for the last time at the end of last month, thus ending - in failure - the great Movado Group (NYSE:MOV) experiment. The watch-maker expects that a return to its core business (production) will also mean a return to profitability.
As of June 15, the 2010 tally for Ann Taylor Stores (NYSE:ANN) store closings (including down sizings and liquidations) stood at 72, which were part of the original (from 2008) plan to close a total of 117. As of last week though, that target number had been bumped up by 30.
Although not a retailer per se, The Walt Disney Company's (NYSE:DIS) sports-oriented restaurant 'ESPN Zone' targets the same mall-shopper consumer. It recently closed five of the seven units still in operation. The economic contraction was named as the reason - personal spending cuts meant fewer restaurant visits too.
And these certainly aren't the only retailers closing a lot - if not all - their doors.
So is consumer spending really on the mend, or has the so-called recovery been a mirage?
Half Empty
Despite nine straight months of year-over-year retail sales increases - with June expected to be the 10th - the glass, so to speak, is barely half full on a good day. A Thomson Reuters poll suggests that July's top lines will be 3.5% better than in June, while the International Council of Shopping Centers is looking for the same range of sales increase.
So why the pessimism, and why so many store closings, for that matter?
While total spending may be up, shoppers are still bargain-conscious; they're spending less per item, and input costs - everything from the cost of goods to the need for staff to sell them - are on the rise again, chewing into the modest improvements in sales.
As for what to expect from individual retailers when Q2 numbers start to roll out, that line between "desirable" and "affordable" is a fine one to be sure, but a few retailers are expected to be walking it. Kohl's (NYSE:KSS) is one store where fashion and price find a middle ground. It doesn't hurt that Kohl's is also comparing Q2 of this year to a dismal Q2 of last year, and should post up a big relative increase.
On the flip side, the high-end (or perhaps just higher end) retailers are being put back into a questionable light. Citigroup recently lowered its 2010-2012 earnings estimates for several retailers, including Macy's (NYSE:M), forecasting that the early-2010 shopping spree was going to taper off through this year's holiday shopping season. Macy's shares' target price was also cut.
And,
The Bottom Line
Perhaps Michael Niemira, chief economist of the International Council of Shopping Centers, described the problem best and most insightfully, by saying "We are seeing an improvement. We are not seeing a shift from recovery to expansion." Adjust expectations accordingly, because the consumer clearly isn't back in full swing yet. (To learn more, check out Analyzing Retail Stocks.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
Allegedly, we're in a recovery, but here's the really scary part: it's not like it's just a few underfunded and outmatched tiny retailers closing shop. Some major players that could probably tough it out until better days have decided to not even bother trying. Take a look at some of the most eye-opening store closure decisions of late.
IN PICTURES: Consumer "Fads" That Haven't Faded
Biting the Dust
The 27 Movado stores locked their doors for the last time at the end of last month, thus ending - in failure - the great Movado Group (NYSE:MOV) experiment. The watch-maker expects that a return to its core business (production) will also mean a return to profitability.
As of June 15, the 2010 tally for Ann Taylor Stores (NYSE:ANN) store closings (including down sizings and liquidations) stood at 72, which were part of the original (from 2008) plan to close a total of 117. As of last week though, that target number had been bumped up by 30.
Although not a retailer per se, The Walt Disney Company's (NYSE:DIS) sports-oriented restaurant 'ESPN Zone' targets the same mall-shopper consumer. It recently closed five of the seven units still in operation. The economic contraction was named as the reason - personal spending cuts meant fewer restaurant visits too.
And these certainly aren't the only retailers closing a lot - if not all - their doors.
So is consumer spending really on the mend, or has the so-called recovery been a mirage?
Despite nine straight months of year-over-year retail sales increases - with June expected to be the 10th - the glass, so to speak, is barely half full on a good day. A Thomson Reuters poll suggests that July's top lines will be 3.5% better than in June, while the International Council of Shopping Centers is looking for the same range of sales increase.
So why the pessimism, and why so many store closings, for that matter?
While total spending may be up, shoppers are still bargain-conscious; they're spending less per item, and input costs - everything from the cost of goods to the need for staff to sell them - are on the rise again, chewing into the modest improvements in sales.
As for what to expect from individual retailers when Q2 numbers start to roll out, that line between "desirable" and "affordable" is a fine one to be sure, but a few retailers are expected to be walking it. Kohl's (NYSE:KSS) is one store where fashion and price find a middle ground. It doesn't hurt that Kohl's is also comparing Q2 of this year to a dismal Q2 of last year, and should post up a big relative increase.
On the flip side, the high-end (or perhaps just higher end) retailers are being put back into a questionable light. Citigroup recently lowered its 2010-2012 earnings estimates for several retailers, including Macy's (NYSE:M), forecasting that the early-2010 shopping spree was going to taper off through this year's holiday shopping season. Macy's shares' target price was also cut.
The Bottom Line
Perhaps Michael Niemira, chief economist of the International Council of Shopping Centers, described the problem best and most insightfully, by saying "We are seeing an improvement. We are not seeing a shift from recovery to expansion." Adjust expectations accordingly, because the consumer clearly isn't back in full swing yet. (To learn more, check out Analyzing Retail Stocks.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
James Brumley
James Brumley is a freelance writer and registered investment advisor. He began his career as a broker with a major Wall Street firm, where fundamentals and long-term holding periods were core strategies. After that, he switched gears completely, becoming an analyst at a short-term trading newsletter that focused on technical analysis. He now manages client money using the best of both philosophies. His company, Bluegrass Portfolio Management, offers investors an opportunity to reap superior returns with minimized risk.
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