Retail Therapy
Consumer spending grew steadily during the first three-months of the year, but the increase was mostly due to higher heating bills and medical expenses. Things improved towards the end of the quarter, with a brisk increase in March retail sales, but many economists attributed the surge to pent-up demand after the winter’s chill and a big uptick in auto sales. This week, we will learn whether Americans were willing to spend money in the stores during a mostly normal month. Analysts are hopeful that April Retail Sales will show moderate progress, on the heels of improving sentiment. In advance of the report, there were a number of retail milestones last week that beg the age-old question: With sales sinking and stores closing, can brick and mortar retailers adapt their business models to survive? Last week, Office Depot and Sears announced that they would close stores; and in addition to the massive security data breach, Target’s CEO Greg Steinhafel lost his job in part because foot traffic was down and the company continues to lose business to online competition.
Although sales in physical stores still account for over 90 percent of overall retail sales activity, research shows that growth of online sales will skyrocket in the future. Just consider that a third of consumers Forrester surveyed early last year said they use their smartphones to research and compare prices in-store, and many expect to use their phone for price research even more in the future. Or how about this neat factoid from the New Yorker’s Amy Merrick: “Five years ago, Macy’s revenue was around $23 billion, while Amazon’s revenue was about $24 billion. Last year, Macy’s had nearly $28 billion dollars in revenue; Amazon had more than $74 billion.”
All may not be lost! Some brick and mortar companies have made big investments online and it appears to be paying off. For the first time in 10 years, Wal-Mart’s online sales growth surpassed Amazon’s last year (30 percent vs. 20 percent). Of course Amazon still holds a huge advantage: Amazon's online sales of $67.8 billion dwarfs Wal-Mart's $10 billion and last year, Amazon sold more than its next 10 biggest competitors combined. That said, Wal-Mart and other forward thinking retailers have jumped into the fray, which should eventually put pressure on the e-commerce giants. Wal-Mart, along with Macy's, Nordstrom and Kohl's will report earnings this week.
One more retail milestone: Chinese-based Internet marketplace Alibaba, which has been described as e-Bay, Amazon and PayPal combined, announced its US initial public offering, which could be the largest Internet IPO since Facebook. Alibaba has grown into the largest e-commerce company in the world’s most populous country, with a reported transaction volume that’s triple the size of eBay, and more than double the size of Amazon.com.
MARKETS:
- DJIA: 16,583, up 0.4% on week, up 0.04% YTD
- S&P 500: 1878, down 0.1% on week, up 1.6% YTD
- NASDAQ: 4,071, down 1.3% on week, down 2.5% YTD
- 10-Year Treasury yield: 2.59% (from 2.59% a week ago)
- June Crude Oil: $99.99, up 0.2% on week
- June Gold: $1302.90, down 1.2% on week
- AAA Nat'l average price for gallon of regular Gas: $3.66 (from $3.56 a year ago)
THE WEEK AHEAD:
Mon 5/12:
2:00 Federal Budget
Tues 5/13:
7: 30 NFIB Small Business Optimism Index
8:30 Retail Sales
8:30 Import/Export Prices
10:00 Business Inventories
11:00 Q1 2014 Quarterly Report on Household Debt and Credit
Weds 5/14:
Macy's, Deere, Cisco Systems
8:30 Producer Price Index
Thurs 5/15:
Nordstrom, Kohl's, Wal-Mart Stores
8:30 Weekly Jobless Claims
8:30 Consumer Price Index
8:30 Empire State Manufacturing
9:15 Industrial Production
10:00 NAHB Housing Market Index
10:00 Philadelphia Fed Survey
Janet Yellen Speech: “Small Businesses and the Economy”, National Small Biz Week 2014
Fri 5/16:
8:30 Housing Starts
9:55 University of Michigan consumer-sentiment index
10:00 April Regional and State Employment and Unemployment