Weak first-quarter earnings by retailing juggernauts Macy's (M) and Walmart (WMT) have investors and industry insiders questioning the financial health of U.S. consumers. Howard Davidowitz, a longtime consultant to the retail industry, says retailers catering to the middle-class will continue to miss profit and sales forecasts for the foreseeable future.
"Eighty percent of America is in a recession," he argues in the video above. "One in six Americans are in poverty. Forty-nine million are on food stamps. Americans don't have money."
Davidowitz rejects the notion that cold, wintery weather in the Northeast prevented individuals from shopping this winter. He believes it's the economy that is keeping shoppers at home.
"Walmart [earnings] have been down for six straight quarters," he says. "The economy is structurally weak. People can't afford to shop at Walmart."
Big-box retailers like Target (TGT), Sears (SHLD), Bon-Ton (BONT) and Kohl's (KSS) may feel the pressure but high-end retailers and deep discount chains like Dollar Tree (DLTR) and Dollar General (DG) are winning in this bifurcated economy, according to Davidowitz. He also predicts that malls around the country will be forced to close because struggling anchor stores, such as J.C. Penney (JCP), are underperforming in certain markets.
There are signs, however, that the economy is returning to normal: the unemployment rate dropped to 6.3% in April and consumer confidence rose sharply last quarter to pre-recession levels.
Major retailers reporting earnings this week include American Eagle Outfitters (AEO), Tiffany (TIF), Home Depot (HD), Target, Best Buy (BBY) and TJX Companies (TJX).
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