Retailers Getting Smashed

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(Edited)

Tis the season to make some money.

That is the mantra for the retailers in the developed world. Leading the way to the altar of consumerism is the United States, with some of the largest retailers in the world.

Everyone is aware how important the holiday shopping season is to these companies. Much of the years is operating in the red. However, Black Friday, a religious experience to some, is the day when retailers look to turn it all around.

To take the mania to an ever greater level, stores put as much stuff on sale as possible. They want to leverage the foot traffic into filling their carts with as much stuff as possible. After all, the higher the credit card debts, the better it is for these entities.

Alas, perhaps all the warnings of economic difficulties were right all along. It appears that things aren't as rosy as some surmised.

Black Friday Down

The Post-Thanksgiving mania might have been tempered this year. Early reports are coming in and it is not pretty.

According to Bloomberg, the traffic was not what many were forecasting.

US retailers discounted heavily on Black Friday to clear out bloated inventories but customers responded with only modest traffic, leaving profitability in doubt for many chains.

We know some of these chains were in rough shape entering this holiday season. This is not specific based upon geography.

Crowds were thin in the late morning at Connecticut’s Stamford Town Center mall, with few shoppers at Kay Jewelers and just a small line at Forever 21. A couple at a Walmart Inc. supercenter near Dallas reveled in the lack of crowds as they bought presents for their grandchildren. At the Stonestown mall in San Francisco, shoppers were few and far between.

This does not bode well for those companies that suffered through high inventory levels throughout 2022.

When we look at the data, we see how the post-pandemic jump in inventory levels caused a massive problem.

fredgraph.png

It is not a chart you want to see with slowing traffic on Black Friday.

Retailers Bought Into The Lie

Throughout the last couple years, we were bombarded with messages of how strong the economy is doing. Everyone from the White House to the Fed to mainstream media was touting this. Supply chain issues were the core of it all and, so we were told, the consumer is strong.

The Fed even came out recently detailing how the labor market is showing no signs of slowing anytime soon. For this reason, they would keep hiking interest rates.

Of course, the only logical conclusion, if you are a retailer is to buy into this garbage. Now, it appears, this is coming home to roost.

Never in the history of this charge have we seen inventory levels go up so quickly. On one hand, this makes sense since the supply chain issues were combined with massive demand. Hence, these companies thought it would continue.

What was overlooked is the part stimulus played along with the fact that services dropped off a cliff due to the lockdowns. In short, the demand was going to wane regardless. Toss in high energy and food prices and we are left with a situation where household budgets are stretched thin.

Something simply has to give.

The lie that things were going so well is being exposed. Certainly, we will need more data than just some obervations on Black Friday. This is, nevertheless, keeping in line with other factors. For example, Walmart did exceptional last quarter while Target struggled. This is a sign that people are starting to scale down their purchasing.

We will have a better sense of things over the next few weeks. If there is a poor holiday shopping seasons, expect massive layoffs to begin after the New Year starts.

A lot is riding on the next 5 weeks.


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9 comments
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Bang, I did it again... I just rehived your post!
Week 133 of my contest just started...you can now check the winners of the previous week!
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This is what happens when we have phoney free markets. If businesses screw up they should fail but the taxpayers have kept a lot of these hollowed out husks of businesses afloat with federal reserve and BOE handouts.

What we are experiencing is in fact the free market in reality. Many individuals making rational decisions. I know. It never really happens but economists like to think it does.

The public are slow to catch on to what has been happening for decades but now the pennies have dropped and people are not spending as expected. They see the manipulation.

It's a bit like waiting for bitcoin to bottom. It just keeps going down. People thought It was a good buy at £16k but It wasn't and many lost more money.

I think the public (those with money) have figured out that the bottom isn't even close to being in for retail so they are waiting and keeping an eye on price.

Meanwhile oil companies are making obscene profits while people can't heat their homes?

The Randist dream has come true for all to see and it's abysmal.

Happy days 🤯😂👍🏼

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federal reserve and BOE handouts

What handouts and how do the FED and BOE do that?

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By sleight of hand.

The USA and UK governments paid billions out to companies during lockdowns ostensibly to help employers pay employees wages.
This was funded by government issued bonds that were bought by the fed and Boe.

These bonds pay interest as you know and will have be redeemed in the future by taxpayers of course.

This is how government works. All government funding is ultimately paid for through taxation.

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Screen Shot 2022-11-27 at 12.10.35 AM.png
Just looks like we got back to trend. Maybe it's problematic if it keeps going but so far it seems fine.

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Certainly reversion to the means is often the case. The challenge is you have that at a time when the economy is slowing and inflation was outpacing the increase in earnings.

So the reality is we should be slowing down on the inventory.

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(Edited)

I'd argue the economy has been slowing and inflation has been outpacing wages for a decade or more now. Inflation is more extreme but maybe a little oversupply in inventory helps that get under control. Especially since the undersupply is what sent inflation out of control in the first place.

To add to this. If you think about what they are measuring—the US dollar value of goods—and then you consider these last few years of inflation, the $675 billion we had in inventory in 2019 would now be worth $750 billion. Meaning, actual inventory levels are exactly the same as they were three years ago.

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I am wondering what will happen to these companies and their earnings report. I can't see things working out well for places like Walmart because they spent so much money on that much inventory but they can't even get rid of it. I guess those warehouses will be storing goods for a longer time.

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