Brick-and-mortar retailers are being taken out the back and shot.
With impeccable timing – the very morning that the Commerce Department would report crummy retail sales – Wal-Mart Stores rubbed salt on the wound. It disclosed in an SEC filing that it was “committed to growing,” as CEO Doug McMillon put it, but was “being disciplined about it.”
Corporate speak for shutting 154 stores in the US – its 102 Walmart Express stores, 23 Neighborhood Markets, 12 Supercenters, 7 stores in Puerto Rico, 6 discount centers, 4 Sam’s Club stores – and 115 stores internationally, for a total of 269 stores.
So this will “impact” 10,000 “associates” in the US and 6,000 internationally. Those folks will be given “priority” for open positions at other stores. If that doesn’t work out, they’re on their own with 60 days’ pay and “if eligible, severance.” They’re going to be looking for jobs just when other retailers are also whittling down their headcount.
The closures will hit Wal-Mart earnings to the tune of 20 cents to 22 cents per share, most of it in Q4, which it will report on February 18.
The SEC filing strategically coincided with the retail sales report the Commerce Department released this morning. Turns out, auto dealers, restaurants and bars, and online stores are kicking butt, while brick-and-mortar retailers are being taken out the back and shot.
Total retail and food services sales in December fell 0.1% from November to $448.1 billion. This brought the total for 2015 to $5.32 trillion, up 2.1% from 2014, the slowest growth since 2009. By comparison, from 2010 through 2014, retail sales grew 5.1% on average.
These estimates are adjusted for seasonal variation and holiday and trading day differences, but not for price changes. And despite rumors to the contrary, there were “price changes.” The Consumer Price Index for the 12 months through November rose 0.5%; without food and energy, it rose 2.0%. And if you bought a new vehicle recently, you were in for sticker shock.
Retail sales were largely propped up by soaring auto sales. Motor vehicle and parts dealers, by far the largest category of retailers with $1.1 trillion in sales for the year, account for 21% of total retail sales. While flat for December, sales for the year soared 7%.
But electronics and appliance retailers weren’t so lucky. Their sales dropped 3.8% in December, after dismal holiday sales, and are down 2.4% for 2015.
Just yesterday, Best Buy gave us a premonition when it complained in an earnings warning about poor demand for mobile phones and other electronics. Holiday sales in the US had fallen 1%, and sales for the quarter would shrink, it said. Internationally, Best Buy is facing a fiasco of rare proportions, with revenue expected to implode by 30% in the quarter due to terrible demand in Canada, where it has been shuttering many stores.
The good thing about the oil price plunge has been the decline in gasoline prices. So sales at gasoline stations fell 14.6% for the month and 19.4% for the year (in dollar terms, but not volume terms). Everyone has been hoping since late 2014 that this would get consumers to spend this extra money at, say, electronics and appliance retailers. For how well these hopes worked out, see Best Buy.
And sales at Department stores fell 2.1% for the month and 2.0% for the year. These stores, along with Big Box stores such as Best Buy, have a mega-problem that’s just going to get worse: in addition to a very tough retail environment and strung-out consumers, they also face the largest demographic in the US, the Millennials. They’re the Holy Grail. Everyone wants their growing dollars. But they have other things in mind and don’t feel like blowing their money at brick-and-mortar retailers.
They’re buying online. And it shows: non-store retail sales jumped 7.1% for the month and 6.3% for the year. They’re frugal when it comes to things like clothes. But they’re spending money on “experiences,” such as restaurants and bars: sales at food services and drinking establishments jumped 6.7% for the month and 8.1% for the year. And sales at sporting goods, hobby, book & music stores rose 7.6% for the month and 5.9% for the year.
Now all eyes are on auto sales. This category has kept retail sales from rolling over entirely. Last year was an all-time record year. These sales have been funded by aggressive lending with loosened underwriting, including to subprime customers. Loan terms and loan-to-value ratios have been extended to the point where bank regulators are fretting about them. This sort of lending goes in cycles. The economy has now reached the end of the credit cycle. As losses rise, credit tightens. And that will pull the rug out from auto sales. It hasn’t happened yet, but it will, and when it does, it will impact a lot more than just retail sales.
Many retailers are still owned by PE firms: Neiman Marcus, Albertsons, Safeway, J. Crew Group, 99 Cents Only Stores, Bon-Ton Stores, Claire Stores, and a slew of others. Exits were planned and IPOs were lined up, but the stock market got the jitters, and the IPO window closed on them. For these over-indebted, junk-rated brick-and-mortar retailers, it’s going to get much tougher. Read… Defaults and Restructuring Next for Retailers