Retail: Out and About on a Friday Morning
Today was the first day I was out in a week — been under the weather with a chest cold/sore throat misery.
I was surprised by a couple of things:
First, it was more like a weekend in the stores — Target was jammed, and a few other stops were similarly crowded. Whether it was bargain hunters, or this is merely part of a four day weekend, lots of folks were out and about shopping.
Second, a plethora of commercial retail space is for rent. I have never seen so many empty store fronts, and in very nice areas. The FedEx Kinkos by us is toast; A number of local family owned shops are empty with big For Rent signs in the window. The Harvey’s Electronics that closed 8 months ago is still for rent.
The Retail sector is DOWNSIZING. That means fewer stores, few square footage, few employees, and perhaps even fewer chains. The new frugal future is here, and that means tighter margins for retailers, with little room for error.
Even if the economy recovers tomorrow, we still have excess retailers. MEW is a non-option, leverage s coming out of the system, and wages are stagnant. The next 10 years in Retail with look nothing mlike the previous 10 years.
Its obviously already been impacting the REITs, but this is very bad news for the CRE market. What do you do when your industry gets appreciably smaller, other than suffer some pain and consequences?
>
UPDATE: January 3, 2008 10:43am
Just came across this article in CNN /Money:
The ugly sales year that was 2008 will haunt U.S. retailers in 2009, with industry experts warning that disastrous holiday sales will spark a domino effect of store closures and bankruptcy filings.
And, with thousands of fewer stores, the “shop-’til-you-drop” mentality that has characterized American consumerism could be coming to an end.
“There’s going to be a massive sea change in the retail landscape,” said Nina Kampler, executive vice president with Hilco Real Estate, which advises retailers on their property management.
She said many strip shopping centers already have multiple big-box vacancies after several large stores filed for bankruptcy in 2008. Some eventually went out of business
Thousands of stores to disappear in ’09
By Parija B. Kavilanz, CNNMoney.com senior writer
CNN/Money January 1, 2009: 8:34 PM ET
http://money.cnn.com/2008/12/31/news/economy/retail_closures/index.htm?postversion=2009010120
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January 2nd, 2009 at 1:48 pm
Sounds like people are out there window shopping, Barry. Agreed about the empty storefronts, a lot of smart small business owners in NYC have seen the writing on the wall as well. SRS will have some life in it again before too long, none of those mall owners has gone BK yet.
I just looked at bonds: Both JNK and AGG are up quite a bit off their lows, so is TBT as credit markets begin to thaw a little and money moves out of Treasurys. If this catches on, we may see a little euphoria in the XLF next week – enough to pop up to SPX 1000 by the inauguration?? This is why I will not short this market seriously until we see big-time resistance overhead or earnings season is upon us.
I am still in the TWINE trade (the world is not ending) when it comes to resources and industrials.
January 2nd, 2009 at 1:59 pm
“What do you do when your industry gets appreciably smaller, other than suffer some pain and consequences?”
Hmm, drop your prices, so people can actually afford to start up a new store?
I watched retail rates go up so high the last few years that many of my local favorite shops closed since they couldn’t afford the rent. Now CRE complains. Oh well.
January 2nd, 2009 at 2:16 pm
I’ve never seen more holiday merchandise left over and I have over 30 yrs of checking stores w/ a sales and mktg job for consumer goods mfr. The stuff is just sitting there a week after Christmas with 70% off signs all over. Normally the bargain hunters, like my wife, come out and snap this merchandise up on the 26th. This does not portend well for the retailers, as it appears that the public has nailed their purses and wallets shut.
January 2nd, 2009 at 2:24 pm
Yes, I have noticed more empty stores recently too in the Baltimore area.
It’s about time, if you ask me. I went into a small retail business in 1990. Back then it was no problem to find good spaces in good locations, but over the years it got harder and harder. I remember in the late ‘90s, maybe ’98 or ’99, getting off I-70 at every exit between St. Louis and KC looking for potential locations for stores. It was slim pickins. It got to the point where the only spaces you could find were in newly developed areas at the fringes of town with too few rooftops for me.
I suspect there will be many good locations available over the next 3 to 5 years, but it’s too late for me. I have lost the desire to start new stores now; I’ll let the younger people take advantage of it.
January 2nd, 2009 at 2:32 pm
“What do you do when your industry gets appreciably smaller, other than suffer some pain and consequences?”
Ask for a bailout?
January 2nd, 2009 at 2:36 pm
Barry, timely post too. Dow up 200+ and SRS is still up over 3% today.
January 2nd, 2009 at 2:43 pm
@KJ: Good spot, I had missed that. I like SRS here and QID a little bit later on.
January 2nd, 2009 at 2:50 pm
Sorry for the redundancy, but I feel compelled to reproduce a part of my earlier comment:
“I have never seen numbers on inventory supply of nail salons, tanning beds, home improvement stores, electronics stores…..but I can guarantee there is overcapacity of each. Anyone have an idea how many years supply of automobiles have already been produced?
With overcapacity, the Strip Mall Shop-til-you-drop Economic Model will not soon be resurrected – cash is king; credit is tight.”
Now back to this question: “What do you do when your industry gets appreciably smaller, other than suffer some pain and consequences?”
When the industry represents consumption, which comprises 72% of GDP, you end up with lowered prices causing tighter profits causing falling jobs which then leads to more lowered prices….
….and contraction of GDP – the very spiral the Fed and Treasury are hell-bent on trying to avoid.
Question is – are they too late?
January 2nd, 2009 at 2:51 pm
We noticed a lot of women out shopping on New Years Eve down her in Houston. Since I hate to shop, I can’t say what’s in the stores.
There was an article in the Houston Chronicle a couple of days ago about a ritzy condo project not even getting off the ground because they hadn’t met pre-construction sales minimums. There was a quote in it saying that sales had been dead since the summer and another notation that a big mixed use project that had been started was stalled. Can’t say I’m sorry to see it.
Hope there are some more good bargains in big screen TV’s. Our dozen year old monstrous 32 inch CRT set is close to giving up the ghost. The picture wouldn’t come on about six months ago, so I found some instructions on the web for turn up the high voltage a little (I have some experience) and it’s been decent since then, but last night there was a pop when I turned it on and the picture is off color.
On CRE and SRS, be careful. I was going to buy some myself (SRS, not CRE) but NYT had a story recently that they big boys are lobbying for a bailout. With helicopter Ben they may get it. Lord knows that malls and are too important to our economy to be allowed to fail.
January 2nd, 2009 at 2:53 pm
Winston, you left out florists. I haven’t looked closely in Houston, but in uptown New Orleans, it seemed like there was one every block.
January 2nd, 2009 at 2:57 pm
3 or 4 weeks ago I bought some refilled printer toner cartridges at a business owned by a guy who works as an engineer for Duke Energy here in Charlotte, NC. He said management had informed them to cut expenses to the bone or as much as possible as revenues had been slipping dramatically. Before I could openly speculate that revenue reductions were from their commercial customers, this engineer stated their revenues from businesses had dropped significantly.
I have seen more commercial space for rent in numerous areas where I drive and have also heard this from people who drive in other areas in and around Charlotte. There will be more vacancies. Also, retailers are offering big discounts here too.
I also have a friend who is a partner in a BP Amoco station-small convenience store nearby and he says his customer traffic at the gasoline pumps is down significantly compared to the first half of 2008 even though the price of regular gasoline has dropped a huge amount to around $1.55 ish per gallon right now. People are really tightening their spending belts here.
January 2nd, 2009 at 3:00 pm
Mike: Uptown NoLa, one of my favorite places in the world.
Long may it survive, despite Bush, Katrina et al..
January 2nd, 2009 at 3:12 pm
@Mike in Nola,
Toys stores might make the list, too. Pretty much a seller of anything that requires consumer choice is probably holding his or her breath.
It occurs to me that a slowdown of this magnitude will take so long to play out that our current culture of instant gratification/instant information may not be able to prepare for or accept the timetable. We could easily keep lurching forward and back as each false cry of bottom leads to a fresh round of optimism and enthusiasm.
Our society seems to be torn between those who think taking the blue pill will result in an instantaneous reversion to “good times” and those who have already swallowed the red pill and are hiding themselves and their cash under their mattresses.
January 2nd, 2009 at 3:12 pm
Mike in Nola @
“On CRE and SRS, be careful. I was going to buy some myself (SRS, not CRE) but NYT had a story recently that they big boys are lobbying for a bailout.”
Can you provide a URL?
As I have been legging into SRS on its way down, I need to bone up…
To start, the general question, in relation to FNM/FRE, AIG, GM, how big might a bail-out have to be to “stabilize” CRE?
January 2nd, 2009 at 3:12 pm
Mike in Nola Says
“On CRE and SRS, be careful. I was going to buy some myself (SRS, not CRE) but NYT had a story recently that they big boys are lobbying for a bailout. With helicopter Ben they may get it. Lord knows that malls and are too important to our economy to be allowed to fail.”
Thanks for the tip. The only way to really be careful is to not be in the market at all, and it’s too late for that…
As for a bailout, yes that is always a possibility now. But I don’t think empty stores and other commercial space will hurt us / the economy as much as the former big three who have perhaps a million direct and indirect workers / families dependent on them for income. So I don’t think there will be much urgency to bail CRE guys out when we won’t need them to build any more strip malls for maybe 5 years, and the existing space is still just going to sit there empty with or without a bailout.
But I might be wrong; that’s just my guess.
January 2nd, 2009 at 3:16 pm
Bailing out CRE means bailing out those who are holding the CRE paper, yes? and those holders in the main might be?
January 2nd, 2009 at 3:21 pm
There is TONS of commercial real estate available in the southwest suburbs of Minneapolis. Signs everywhere one looks. CRE is going down in ’09.
And in one neighborhood of Eden Prairie near much of the empty CRE space (a SW Minneapolis suburb), they’re JUST STARTING a new development of higher end homes. My buddy who lives in that neighborhood says they’re building 72 or so new homes there. I repeat, they’re just starting this development. Insane.
January 2nd, 2009 at 3:31 pm
We may already have bailed out CRE in that the banks, etc. are holding on to the TARP funds and are not divulging what they are doing with these monies. Maybe they are using it as a reserve against upcoming CRE losses.
January 2nd, 2009 at 3:40 pm
Batmando:
On the CRE begging, I don’t have the original reference I saw, but Google brought this up:
http://www.reuters.com/article/ousiv/idUSTRE4BL3ZD20081222
leftback:
Can’t say as I miss it as much as I thought I would, except that Houston has very few decent bakeries and good restaurants are fewer and farther between. It’s amazing what gets a good review here.
Also, over here you don’t need to worry as much about getting shot, at least by criminals. NOLA had 3 shot to death in the first 11 hours of 2009, one was shot by cops after he opened fire on police as they approached a suspicious car.
January 2nd, 2009 at 3:47 pm
On the CRE bailout, you can figure if PIMCO owns a lot of the paper, there will be a bailout. Gross must have some pics of Paulson and Bernanke doing some lewd act. :)
PIMCO bought lots of Fannie and Freddie bonds from those who were scared of them. PIMCO owned a lot of GMAC bonds which they refused to swap for stock. And, PIMCO has been appointed to oversee the buying out by the Treasury of their own inventory of MBS.
January 2nd, 2009 at 4:23 pm
Mike in Nola,
Are you sure that is PIMCO and not PIMP CO?
January 2nd, 2009 at 4:35 pm
Yeah, still can’t understand why SRS is at a 52-week low. I’m not backing the truck up, but am buying smaller amounts without having any sell-stops.
January 2nd, 2009 at 4:50 pm
Now they’re talking about a “Buy American” call on CNBC.
Hey business, here’s a deal for you, I’ll take the “Buy American” philosophy a little more seriously if you lead with the way with a “Hire American” standard.
Btw, snapping together 50 parts sourced from China and Taiwan in a shed in Alabama does not qualify as “American made”.
January 2nd, 2009 at 4:52 pm
@ larster at 3:31 pm
“We may already have bailed out CRE in that the banks, etc. are holding on to the TARP funds and are not divulging what they are doing with these monies. Maybe they are using it as a reserve against upcoming CRE losses.”
So if the banks have TARP funds as reserves against losses on their CRE paper that insulates them, but as CRE goes bust in ’09 the Dow Jones U.S. Real Estate Index still tanks and SRS soars?
January 2nd, 2009 at 5:14 pm
Boy, I keep hearing about all great bargains and deflation during this recession…too bad I haven’t seen them for items I’ve shopped for.
Just finished my basement and spent a good sum on AV equipment (online purchases). The 46″ Samsumg I bought actually increased in price between early Nov and Christmas…and it wasn’t even the most recent model. The Harmon-Kardon speakers I bought were apparently in such high demand/low supply that I had to wait for 6 weeks to receive delivery – again, no discounted pricing anywhere.
I also went to a Cabela’s store at the crack of dawn on 12/26 hoping to find some great deals. No such luck. Everything on my shopping list was marked at their standard prices and I didn’t see great deals on anything, but long lines at the register.
January 2nd, 2009 at 5:18 pm
@Tom K: Not many mark downs at REI the other day either. Had some clearance items for sale but most of their stuff was full price and the store was quite full. I think some retailers (like REI, Wal Mart, Costco) will do just fine but others are clearly getting murdered.
January 2nd, 2009 at 5:41 pm
In the day of computerized inventories we weren’t every supposed to get in one of those ’70′s inventory nightmares. Indeed it works pretty good, but the thing they forgot is that you can also store inventory on the customer side. I think we have all the useless shit we need for the next five years — stuffed in our basements and parked in our yards.
Now that is an inventory problem. At least it is if you sell useless shit for a living.
January 2nd, 2009 at 7:41 pm
JPM still seems to head the list of derivative holders, and re: Gold and Silver, of interest is an article read several days ago that in the last several months, JPM (with the Fed in tow) seems to be the biggest short in gold and silver… notice the change from Q2/08 to Q3/08 per Ron Kirby, here:
http://news.goldseek.com/GoldSeek/1230678365.php
January 3rd, 2009 at 2:37 pm
I hate to see the glass half full, because I’m normally a skeptical “half-empty” fellow, but doesn’t this mean that those who remain will be stronger?
Isn’t the idea behind recessions/depressions to wipe out the weak businesses that were allowed to spring up during the previous periods excesses? It certainly means depressed CRE, but doesn’t it also mean that retailers with good businesses continue and perhaps even get stronger?
The Best Buy nearby was a complete ZOO before and AFTER Xmas…the parking was jammed and the place was FULL.
I don’t buy individual stocks or ETFs, but wouldn’t chains like WMT (already doing great), Target, Best Buy, Kohls? be beneficiaries of a big wipeout of the lesser rans?
Wonder if there’s some kind of cross trade there? i.e Buy several good retailers you like and short CRE/REITs? That trade has probably already been running…just tossing out crap on a saturday afternoon waiting on football.
Missed the Friday afternoon action, but that ten year note looks very, very toppy…the action on the Yen doesn’t look great, either. Those are all developments that should continue to help the risky assets like stocks and commodities in the short term.
I did some oil v. gold trade yday and it felt good. It sure feels like we could get a run in oil (too many bears) while gold (too may bulls) languishes.
- AT
January 3rd, 2009 at 4:01 pm
AT, I echo your sentiments on the retailers. Another case in point, my neighbor is in the mortage forms/software business. As residential RE loan processing came to a near standstill, their margin kept them afloat while a good number of their competitors shutdown. On a monthly revenue basis, they are now up 27-30% from their lows, have new projects and new business. In the retail sector, I’m following a few individual/popular names as tells or short term trades: APP, URBN and JCG. As for myself, I haven’t decided if I’m sick of being a bear for the last 2 years or love being a contrarian; the point, more likely, is to keep making money no matter the direction of the market.
January 3rd, 2009 at 8:24 pm
I bet a lot of the after Xmas shopping is people spending their gift cards. Those things are sold everywhere. Wal-Mart has a display of gift cards from every store you can think of. They make one-stop-shopping for Xmas, possible.
On another note:
I want to buy a big screen TV but I’m afraid that whichever store I buy it from might file for bankruptcy, or worse, go out of business. I won’t have the store deliver it because if the store goes under before it’s delivered I may never see the TV. If I get it home and have a problem, calling the store’s tech dept. may not be an option. I know I can get around the first problem by paying with a credit card, but it’s going to be a pain-in-the-ass (pita) if this purchase doesn’t go smoothly.
My point: It’s an interesting dilemma. I have the money, but have delayed making the purchase because of the possible hassle.
PS: Does this thing have a spell checker, or do I have to do it the old fashion way? :-)
January 4th, 2009 at 2:32 am
“I hate to see the glass half full, because I’m normally a skeptical “half-empty” fellow, but doesn’t this mean that those who remain will be stronger?”–AT
re: “glass half full”–we might care to wonder how much brain damage that ‘metaphor’ has, already, done.
LSS: in our Environment, the Glass is Always Full, it’s only a question of : “with what?”
and, w/ this: “that those who remain will be stronger?”, similiarly, in which Fashion would you be referring to? in our fen of, increasingly, fickle Finance by Fiat, it’s becoming more difficult, and dangerous, thereby, to assume..