“When we see the head of Walmart—10% of United States sales and the largest retailer on the planet earth—come out and say their profit will be down next year, it will down this year, it will continue to be down—I'm quoting him; when you see the CEO of Macy's come out and say business is soft, Neiman Marcus say business is bad, you just go down the list...department store business is terrible.”
In Wednesday’s podcast we interviewed retail industry expert Howard Davidowitz of Davidowitz and Associates, who made the comments above, about the state of retail and the general economy.
As shown in the chart below (courtesy of the Federal Reserve), retail sales are hardly growing on year-over-year basis (as of November 2015) and have been in a general downward trend even while gas prices have declined.
Many analysts forecasted that the large decline in gas prices would provide a tailwind for consumption, which would lift US economic growth as Americans had more money to spend.
This has not been the case and Davidowitz notes that most Americans are choosing to save their money instead, being woefully underprepared for retirement, and then making most of their purchases online or at discount stores.
Davidowitz notes the large number of stores, some of which are high-end, opening up discount segments in response. To him the weakening trend in retail sales and the moves he sees in the retail space are a reflection of the disappearing middle class in America.
“The unmistakable fact,” Davidowitz says, “is in the last six years we have doubled the number of people in poverty (while) we've doubled the debt…this is astounding!”
Here are a few excerpts from his recent podcast interview (preview below). Subscribers can access the full audio by logging in and clicking here.
Department Store Business Is Terrible
“When we look at retail in general I would say we have a very very mixed picture... you see the consumer saving more because half of Americans have nothing saved for retirement, which is pretty scary...and when we see the head of Walmart—10% of United States sales and the largest retailer on the planet earth—come out and say the profit will be down next year, it will down this year, it will continue to be down—I'm quoting him—when you see the CEO of Macy's come out and say business is soft, Neiman Marcus say business is bad, you just go down the list...department store business is terrible, the apparel chain business is very bad...and the number one gift item for Christmas is apparel...”
Customers Don’t Have Any Money
“No one can understand how gas prices can be this low and Walmart who is the major beneficiary with these supercenters where you have to drive a long way to get to the store—no one can understand why they're not getting spectacular results. I understand it—they're customers don't have any money! And they are working fewer hours and they don't get raises...to me it's pretty clear.”
“The bottom line is we've spent all the money and where are our results? Our results are a very mediocre, slow growth economy. And that reflects itself in retailing, which is 70% of the economy.”
Listen to this full interview with Howard Davidowitz by logging in and clicking here. For a complete archive of our broadcasts and podcast interviews on finance, economics, and the market, visit our Newshour page here or iTunes page here. Subscribe to our weekly premium podcast by clicking here.