Retail and Food Service Sales Down

From November 1st to December 1st food service and retail sales dropped from $352.63 billion to $343.24 billion, a 2.66% monthly drop. The largest since this data is being measured. But much more significant is the drop since its peak: A drop of 10.61% from $384.16 billion in Nov. 2007 to now $343.24 billion.

This is consistent with a miserable shopping season, closing chain stores, and contracting consumer credit. In addition it is important to stress again and again the disastrous consequences that this whole trend will continue to have on commercial real estate in the US.

People are trying to consolidate their miserable finances by cutting down consumption and beginning to save up money again which they have neglected over the past decade. This is all part of the credit crunch phase of the business cycle and a necessity on the road to recovery. The government, however, is trying hard to keep this from happening. All these interventions of course won’t prevent this collapse, they merely slow it down, make the process more painful, and aggravate the resource misallocation.

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Macy’s to close 10 stores

Reuters writes Macy’s to close 10 stores:

Macy’s Inc is expected to announce as soon as Thursday it will close 10 locations, the Wall Street Journal reported citing a person familiar with the matter.

The department store operator, which runs more than 810 Macy’s stores and also operates the Bloomingdale’s chain, had reported a $30 million loss in the first nine months of 2008, with sales dropping 4.3 percent.

U.S. retailers faced what could be the worst holiday shopping season in nearly four decades as a year-long recession, tighter credit and mounting job losses squeeze household budgets.

“We have said that we will continue to prune stores on an as-needed basis over time,” Macy’s spokesman Jim Sluzewski told the paper, declining to comment further.

Macy’s could not be immediately reached by Reuters for comment.

…more bad news for commercial real estate as already mentioned in Holiday Retail Sales Down. The impact of Macy’s closing down just 1 location will be devastating for anyone who rents out the space. Multiply that by 10.

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Holiday Retail Sales Down

Reuters writes Retailers’ holiday sales plummet 4 percent:

Retailers’ sales fell as much as 4 percent during the holiday season, as the weak economy and bad weather created one of the worst holiday shopping climates in modern times, according to data released on Thursday by SpendingPulse.

The figures, from the retail data service of MasterCard Advisors, show the 2008 holiday shopping season was the weakest in decades, as U.S. consumers cut spending as they confront a yearlong recession, mounting job losses and tighter credit.

“It’s probably one of the most challenging holiday seasons we’ve ever had in modern times,” said Michael McNamara, vice president of Research and Analysis at MasterCard Advisors.

“We had a very difficult economic environment. Weather patterns were not favorable toward the end of season, and that resulted in one of the most challenging economic seasons we’ve seen in decades.”

The figures exclude auto and gas sales but include grocery, restaurant and specialty food sales. Although SpendingPulse did not exempt the food prices, McNamara said the decline would have been steeper without them.

“There’s a lot of food that provide a buffer for the total retail sales numbers,” he said.

SpendingPulse tracks sales activity in the MasterCard Inc payments network and couples that with estimates for all other payment forms, including cash and checks. It has been tracking holiday spending figures since 2002. Exact comparisons beyond that year are difficult because of changes in measurements.

The holiday shopping season typically runs from the day after U.S. Thanksgiving, which occurs on the fourth Thursday of November, until Christmas Eve. But this year Thanksgiving was a week later than last year.

To benchmark a comparison, SpendingPulse measured the season from November 1 through December 24. Sales fell 2 percent in November and 4 percent from December 1 through December 24, according to SpendingPulse.

The holiday sales season can account for up to 40 percent of a retailer’s annual revenue.

It is rather amusing that Michael McNamara mentions unfavorable wether patterns as part of the reason for this slump. If anything, it is surprising that sales aren’t down by much more. Consumer credit will inevitably keep contracting. 2009 will forever be remembered as the year where the American consumer finally capitulated.

If the holiday sales season can account for up to 40% of the annual revenue, then a 4% drop during that season would approximately contribute a 1.6% drop to overall annual sales. If sales during the rest of the year were bleak, the number will be much worse. Add to that a significant drop in profit margins, due to slashed sales prices, and several retailers could easily see their free cash flow wiped out over the next years.

More mid to high-end retailers, such as Best Buy, Gap or Neiman Marcus will have to close down stores nationwide or at least trim down their existing stores. I expect that in 2009 commercial real estate will finally be recognized by the wide public as the disaster it is. Amercia doesn’t need any more Malls. Companies with high exposure to commercial retail properties will suffer. Stocks of Simon Properties Group (SPG) and Federal Realty Trust (FRT) will follow General Growth Properties (GGP) and tumble.

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Consumer Spending Update, Savings Update & Other Data

Consumption on Non-Durable Goods Down:

Savings Up:

Savings Rate Up, it was obviously unsustainable below 0:

Personal Income Peaking:

All in line with an ongoing consumer credit contraction. All in line with phase 8 of the bunsiness cycle. Be prepared for much worse.

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Best Buy a Buy??

Reuters writes:

Top U.S. electronics retailer Best Buy Co has been gaining market share as rival Circuit City closes stores, and smart cost cutting could keep it shining throughout 2009, Barron’s said in its December 22 edition.

The weekly business newspaper said that while Best Buy shares were off by a third since it ran a bullish story on the company earlier this year, the retailer has been making the most of its rival Circuit City’s woes, after that company filed for bankruptcy.

“While the shares have disappointed us this year, they’re now looking every bit as tempting as a cut-rate iPhone,” the report said.

Best Buy beat expectations in the latest quarter and said it would reduce costs through cuts, and was paring the number of new stores it will open in 2009.

I beg to disagree with Barron’s. What are they thinking? As the business cycle phase 8, the credit crunch, teaches us, US consumer demand will collapse throughout all of 2009. Consumer credit has already peaked. Who is going to buy more plasma screen TVs, HiFi systems, and iPods? How does it help the business that its market share is increasing in a market that is contracting? Best Buy is one of the top businesses in the line of fire of this contraction. Not only is it a retailer, it is a retailer for extra consumer goods which consumers will cut down on sharply for years to come. In Q2 and Q3 Best Buy already reported a negative free cash flow.

Circuit City’s bankruptcy is not a sign that Best Buy’s position will be strengthened. It is rather a harbinger of the fate Best Buy will have to suffer sooner or later.

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