There’s a reason banks are so sensitive about rumormongers and aggressive shorts: A bank’s entire business model is based on trust — trust that the money you live with them will still be there later on — and so a lack of trust can really obliterate the whole business.
We don’t think of this being much of an issue for other firms in the “real” economy. But that’s not actually right. Trust is important for retailers, too: Think gift-card sales, or more importantly, relationships with suppliers. What kind of terms would you extent to Bon-Ton Stores (BONT), whose stock is trading at $1.11.
In the What Respondents Are Saying section of this morning’s ISM non-manufacturing report, someone in the retail business noted: “One unusual aspect of the current environment is that suppliers are getting very selective about who they conduct business with. We are spending more and more time ensuring that our key [suppliers] continue to see us as a key customer.”
You’d think that suppliers would be happy to have anyone as a customer in this economy, and yet this retailer is spending “more and more time” convincing its suppliers of its viability. This sounds like bad news for the Bon-Ton Stores of the world, and good news for the likes of Wal-Mart (WMT), which already enjoys supplier relationships that its competitors drool over.
In fact, as JPM analyst Charles Grom noted this morning, Wal-Mart’s cost advantage is actually growing over its big competitor Target (TGT):
In November, Wal-Mart maintained its leadership position, with the price gap widening sequentially. To this point, the price lead increased to 240 bps, up 70 bps sequentially and 30 bps above its past six-month average of 2.1%. Of note, on like-kind items the basket decreased sequentially following two consecutive monthly increases for both retailers. Specifically, Wal-Mart’s basket decreased 0.6% in November while Target’s basket decreased 0.79% sequentially. This led to a 3.4% price lead in like-kind items in November, down 20 bps sequentially from the 3.6% lead WMT had in October
Now we doubt Target has to try hard to convince its suppliers to do business with it — that’s not the point here — but overall, when the weak retailers are spending time trying to convince suppliers that they’ll even exist, the big boxers can dictate terms, cut prices, push back payable and exploit every advantage they can get.