Here’s a sector that’s on life support.
And here’s how you can trade it before someone pulls the plug.
Now let’s see what readers are more prone to criticize: the trade idea(s) or the thesis itself.
This should be fun.
I’m going to try an experiment which will invariably go horribly awry and lead to all kinds of commenter shenanigans.
If you own brick and mortar retailers, you should get out. Run for the hills. Sell it all.
Why? Simple: The model is dead. Or, if it’s not dead, it’s on life support. And the proverbial plug will be pulled in relatively short order.
I remember years and years ago, people used to go to Target for fun. Literally.
It even used to have a cute nickname amongst the “in-crowd” of popular high school seniors and female college freshman outfitting their dorm rooms. They called it: “Tar-jay” or “Tar-zhay.”
When was the last time you heard anyone say: “Hey, you wanna go to Target and just wander around?” For me it’s been about a decade.
But moving beyond the anecdotal, recall the common sense assessment I outlined earlier this month in a post that introduced the “cheezburger cat” as the latest addition to the Heisenberg cast of characters:
Anyone who’s been paying attention over the past six or so months is also acutely aware that there’s another sector of the US economy imploding: retail (NYSEARCA:XRT). Retail’s troubles are well documented. The rise of online competition and a steady decline in foot traffic and earnings seem to presage a veritable apocalypse for brick and mortar. And gain, that’s not hyperbole. This is an existential crisis. Just ask any analyst that covers the space.
And while this is one of those cases where some of the “losers” (brick and mortar) will be replaced by “winners” (e-commerce), this is still a major concern.
It really is that simple for brick and mortar or, as I like to call it in a nod to its impending demise, “brick and martyr.”
The thing about this space is that when you go looking for data, the story just gets worse, and worse, and worse.
For instance, BofAML recently (and this is a quote from a note out this week) “chalked up the [61,000 retail jobs that were lost over February and March] to a slowdown in consumer activity on weak demand for seasonal goods.”
In other words: “weather.”
Well on second thought, they determined that that assessment was too anecdotal, so they decided to do a “deep dive.” Here’s what they found:
Since October 2016, employment has been steadily declining in two retail sectors: general merchandise stores (which includes department stores) and sporting goods, hobby, book and music stores (Table 1). We have seen a similar story in BofA on USA which we publish on a monthly basis. According to Bank of America aggregated credit and debit card data, we see considerable weakness in card spending in department stores (Chart 1). We suspect that these sectors are being weighed down by increased competition from online retailers who have gained significant market share.
Look at that chart! I don’t know if I’ve ever seen something that looked so ominous when you consider how the rest of the chart looks (that is, look at the decline during the crisis – it’s a much steadier looking…