In an economy where the consumer is king, the retail sector is one of the best gauges of growth or decline. And this season’s retail earnings show that consumers aren't spending much money outside of home improvement.
While earnings at Lowe’s (LOW) and Home Depot (HD) beat expectations largely because of strong sales, earnings—and sales—at Wal-Mart (WMT), J.C. Penney (JCP), Nordstrom (JWN) and Saks (SKS) disappointed.
“A lot of the big players are missing [expectations],” says Burt Flickinger, managing director at Strategic Research Group. Even Target (TGT), which beat earnings per share by a penny, disappointed on revenues and warned about “cautious spending by consumers in the face of ongoing household-budget pressures," according to a statement from CEO Gregg Steinhafel.
Leadership is what separates the strong retailers from the weak ones, Flickinger tells The Daily Ticker in the above video, extolling the efforts of Home Depot’s Frank Blake and Lowe’s management team.
“With better leadership you have better merchants, better buyers and better prices and promotional programs,” says Flickinger. “Where you have poor leadership like J.C. Penney you have major problems.”
J.C. Penney’s former CEO Ron Johnson, once the pioneer of Apple’s (AAPL) retail stores, was forced to resign after the company’s sales and stock price plummeted under his leadership. Then Bill Ackman, a major shareholder who had handpicked Johnson, resigned from the board.
Flickinger holds out “very little hope” for J.C. Penney, which is losing $500 million a quarter, and says it could possibly go bankrupt.
He’s also pessimistic about Wal-Mart, the world’s largest retailer. “Same store sales are down three of the last five years [and] leadership is cutting costs rather than driving demand, says Flickinger. In addition, he says, the company has made poor acquisitions in Africa and the U.K. and has simply become “too big to manage.”
So who will take its place as the retail leader?
Target, according to Flickinger. It has “better brands, better prices and better service” than Wal-Mart and is “becoming a shopping center within a store."
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