Breakout

3 Things We Just Learned From the Biggest U.S. Retailers

Jeff Macke
Breakout

Now that Home Depot (HD), Walmart (WMT), Target (TGT) and most of the other minnows in the retail sea have reported their thrid quarter earnings it’s seems safe to conclude the American consumer is feeling fine-ish.

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Fine-ish means not great but not horrible.  Major retailers are doing a little better than last year but not as good as they’d like. The Consumer Discretionary Select SPDR ETF (XLY) is rocking at all time highs but overall the American consumer is “meh.” 

Other conclusions:

Overall it’s the Economy. Obviously.

The Commerce Department announced last week that total US retail sales for the period from August to October were up 3.9%. Target said total sales for the 3rd quarter rose 4%. Walmart chalked up a total growth of 1.4% on the revenue side on slightly shrinking domestic same-store-sales. CPI is up 1.7% over the last 12 months, ex food and energy. When spending is flat on an absolute basis and there isn’t underlying inflation to make nominal growth seem inspiring, mass merchants end up with mediocre results.

Related: Worried Walmart Just Made Your Holidays Less Expensive


“We sort of knew this was going to happen,” says Hitha Prabhakar in the attached video. “We have a slow-growth domestic economy. Of course retail sales are going to mirror that.”

Home Depot, Costco (COST) and Macy’s (M) are doing pretty well but the overall tide isn’t rising.

This Online Retail thing is going to be a big deal.

The commerce department also said last week that e-commerce grew 17.5% in the 3rd quarter of 2013 compared to the same period in 2012.  

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During their otherwise drab conference calls Target, Walmart, and Best Buy (BBY) all spent a great deal of time discussing their online initiatives.  

Sears (SHLD) seems determined to become an online retailer by default; focusing its attention on its online "Shop Your Way" offering while all but ignoring physical stores.

"If we have a shirt in the store in four colors, we might have that shirt in ten additional colors online. To have 14 colors in the store may be too risky because what you don't sell, you end up losing money on, (compared with) having a group of it online that serves all the stores so that if people want more variety, they can get more variety,” said Sears Holdings’ chairman and CEO Eddie Lampert, sounding almost astonished at the value proposition of marrying on and offline retail.

There is no longer any distinction between “e-tail” and “retail”

As far as Walmart is concerned, Amazon (AMZN) is starting to become a serious pain in the backside.  “Walmart is quaking in its boots over the market share being taken from them by the likes of Amazon,” says Prabhakar. The biggest retailer in the world may be able to retain its positions in groceries for now but Amazon is becoming to the go-to company for everything else

Related: Amazon Stock May Be in for a Correction, But Company Is Proving It's a Good Long-term Bet

 

While the rest of retail plods along Jeff Bezos and crew keep growing the top-line at about 20%. Now that Amazon is as big as Target and able to match or beat prices on everything almost without trying, the brick and mortar stores are intigrating their business models with increased urgency.

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The Internet makes shopping an all-day everyday proposition. If there is a theme to be found in retail this holiday season it’s that we’ve finally become a society where time doesn’t matter in terms of shopping.  “Door Buster” sales are almost cute in a world where anyone can go online and find the same goods at a lower price.

Walmart actually ruined its own Thanksgiving plans by first opening the stores on Turkey Day then offering to match their own Black Friday prices a week ahead of time.

Black Friday is now officially a week-long event starting six days before Thanksgiving.

That’s about all you need to know about the retailers’ 3rd Quarter of 2013.

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