It’s been an ugly week for retail.
And while weakness in retail seen over the last several years has been chalked up, among other things, to the shift in consumer habits from shopping in-store to online, Nordstrom’s results are the ones that have analysts across Wall Street worried that something is wrong with the US economy.
“Tourism weakness, warm weather, a focus on experiences/entertainment, consumers purchasing big ticket items (autos/furniture), and the Amazon effect have all been excuses for weakness across retail over the past few weeks,” analysts at Deutsche Bank wrote in a note to clients on Thursday.
But the firm noted that none of these excuses were used by Nordstrom, with the company, “instead highlighting a meaningful slowdown in transactions across all formats, across all categories, and across all geographies beginning in August that has yet to recover.”
Deutsche Bank added: “With a superior business model, in our view, that is half high-end dept. store, 30% off- price, and 20% online, this level of deceleration is a potential cautionary tale of the U.S. consumer’s health.”
Said another way, Nordstrom has, in Deutsche Bank’s eyes, every reason to be a best-in-class retailer even when the US consumer is weak.
And yet they still couldn’t stay above the fray.
In its own note to clients, analysts at KeyBanc wrote, “We think we are either seeing the impact of one of the warmest fall selling seasons in recent history (more likely) or we are teetering on the precipice of a recession.”
And so while KeyBanc
doesn’t think the US economy is heading into recession even throwing the word around shows the level of concern some folks have about the signals we’re getting from the retail sector.
To wit, Macy’s was asked this week if it thought things were similar to 2008-09 — which, you’ll recall, was the height of the financial-crisis-induced recession. The answer was no, of course, but that analysts are framing their questions about less-than-stellar results in these terms shows the general level of anxiety surrounding the retail sector and, by extension, the consumers that drive that sector’s results.
On Friday, the October retail sales report showed sales rose 0.1% over the prior month, less than expected.
Ahead of this report, we highlighted commentary from economist Ian Shepherdson who argued that since retail sales figures are nominal (meaning they simply measure the amount of money spent on stuff and don’t adjust for inflation), we’d likely see an overstated weakness of US consumers due to a decline in gas prices and a tepid figure.
And this was more or less born out. Following Friday’s numbers Shepherdson wrote, “Expect to read about another ‘disappointing’ report, but remember that real consumption has accelerated markedly this year, even though 8 of the 11 retail sales numbers ex-autos this year have undershot consensus.” (Ex-autos in October rose 0.2%, missing expectations.)
On top of all this was a reading on consumer confidence in November from the University of Michigan released Friday morning that showed an uptick in confidence from the prior month.
In this report, Richard Curtin, chief economist for the survey, said, “Confidence rose in early November mainly due to a stronger outlook for the domestic economy.” Curtin added that Friday’s reading is equal to the average seen this year for confidence, a year that has been the best since 2004.
To quickly summarize, then, this week has seen a bunch of bad corporate results which ostensibly reflect a downtrodden US consumer, a retail sales report that missed expectations, and a survey of consumers indicating Americans feel as good about the economy as they have in a decade.
So what’s really going on?
Well, as tends to be the case, there is no one thing driving an obviously terrible retail environment that coincides with a period of general positivity for that sector’s customer.
In an email on Friday morning Russ Certo, a rates strategist at Brean Capital, said that a number of folks recently argued to him that the increase in healthcare costs has “swamped” any benefits lower gas prices were supposed to pass on to consumers.
Certo noted that the impacts of lower oil prices have focused on high-yield bonds, geopolitics, consumers, and inflation, but is it possible that other factors are weighing on consumers and the economy, and if so, what, exactly are those factors? Maybe healthcare. Maybe something else.
And as we’ve written about previously, there is also evidence that consumers have simply increased their savings rates in the wake of the economic turmoil seen over the last decade — and rapidly approaching retirement dates for which folks might be unprepared — and so have been inclined to save rather than spend no matter the circumstances.
All of this is to say that finding a narrative is easy and making a given narrative stand up after a few pointed questions is not.
As Blake Nordstrom, co-president and director at Nordstrom, said on the company’s earnings call on Thursday night, “We’ve said this many times: we’re not economists, we’re merchants. And we concur … that if you get to a higher altitude and you look at the scorecard, there are a number of economic indicators that look real positive for U.S. and the consumer and spending. Yet all we can tell you is in our business, we saw a slowdown.”
This quote is honest and refreshing and frankly, says it all: we don’t know what’s happening, but something is.
Whether it’s good or bad depends on who you ask.
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