The economy is collapsing as the credit creation, which has been the device used to cover-up structural economic decay after the official money printing program terminated, has hit a wall. Retail sales are the first to bear the financial beating consumers are taking, followed by auto sales and, soon, housing.
Macy’s reported its Q1 earnings this morning. Revenues tanked 7.5% vs Q1 2016 and missed Wall Street’s analysts’ fairytale estimate by a country mile. Comp-store sales dropped 5.2%. Operating income collapsed 20.2% year over year.
Retail “Apocalypse” Is Actually Debt “Apocalypse”
More than 8,500 stores are scheduled to be shuttered in 2017. JC Penny, Macy’s, Sears, Kmart, Crocs, BCBC, Bebe, Abercrombie & Fitch and Guess are some of them marquee retailing names that will be closing down mall and strip mall stores. The Limited is going out of business and closing down all 250 of its stores.
The demise of the mall “brick and mortar” retail store is popularly attributed to the growth of online retail sales. To be sure, online retailing is eating into the traditional retail sales
distribution mechanism – but not as much as the spin-meisters would have have you believe.
At the beginning of 2015, e-commerice sales were about 7% of total retail sales. By the end
of 2016, that metric rose to 8.3%. However, looking at the overall numbers reveals that
nominal retail sales have increased for both brick/mortar stores and online. In Q4 2015, total nominal retail sales were $1.186 trillion. Brick/mortar was $1.096 trillion and online was 89.7 billion, which was 7.6% of total retail sales. In Q4 2016, total sales were $1.235 trillion with brick/mortar $1.133 trillion and online $102.6 billion, which was 8.3% of total retail sales. As you can see, there was nominal growth for both brick/mortar and online retailers.
My point here is that the spin-meisters present the narrative that online retailers are eating alive the brick/mortar retailers. That’s simply not true. Part of the problem is is that total retail sales “pie” is shrinking, especially when analyzing the inflation-adjusted numbers. I created a graph on from the St. Louis Fed’s “FRED” database that surprised even me:
The graph above shows the year over year percentage change in nominal (not inflation adjusted) retail sales on a monthly basis from 1993 (as far back as the retail sales data goes) thru February 2017, ex-restaurant sales, vs. outstanding consumer credit. As you can see, since 1994, the growth in nominal retail sales on a year over year basis has been in a downtrend, while the level of consumer credit outstanding as been in a steady uptrend. Since 2014, the rate of growth in debt has exceeded the rate of growth in retail sales. If we were to adjust the retail sales using just the Government-reported CPI measure of “inflation” retail sales would be outright declining.
Economic activity in the United States has relied heavily on an increasing amount of debt issuance for several decades. At some point consumer borrowers reach a point at which they can no longer support taking on more debt, whether in the form of mortgages, auto loans/leases or credit cards. The problem for the U.S. financial system is that there are going to be widespread defaults on the debt that’s already been issued. This is already occurring with sub-prime auto loans and credit cards.
The media and Wall Street want you to believe the “narrative” that online sales are cannibalizing brick/mortar retailing. This is a lie. The problem is that the big retailers like Sear’s and Macy’s have entirely too much debt, as do their customers. It’s systemic Debt Apocalypse that is going to destroy the U.S. economic and financial system, including e-commerce.
The above analysis is the type of content you get in IRD’s Short Seller’s Journal. In addition to providing an in-depth look at the economic and financial numbers that the media and Wall Street refuse to report, the Short Seller’s Journal provides ideas to make money on stocks like Macy’s which are ultimately headed into history’s dust-bin. You can learn more about the Short Seller Journal here: Subscription information. I guarantee that it’s the best value newsletter on the market because there’s no minimum subscription commitment. If you don’t like it, you can cancel after the first month.