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Forum Post: Lousy November Retail Sales Numbers Prove Black Friday Headlines Were a Joke

Posted 2 years ago on Dec. 13, 2011, 2:28 p.m. EST by rbe (687)
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http://www.minyanville.com/businessmarkets/articles/november-retail-sales-november-retail-sales/12/13/2011/id/38371

Best Buy's (BBY) spectacular flame-out (see: Best Buy: Weak Sales, Weak Margins, More Buybacks!) wasn't the only retail disappointment this morning -- the Commerce Department said that November retail sales rose just by 0.2% versus a consensus estimate calling for a 0.6% gain.

That painted an ugly picture for retail overall, but it made an even more important point about the sensationalist headlines around the great margin-sucking 'holiday' that is Black Friday: They can now be disregarded. (See: What Does Black Friday's Creep on Thanksgiving Say About American Retail?)

If you rewind the clock a few weeks, you may remember hearing the National Retail Federation boasting of a 16% year-over-year sales gain for the four-day weekend following Thanksgiving, and ShopperTrak saying that retail sales rose 6.6% on Black Friday itself.

But thankfully, it appears that investors weren't suckered into bidding up retail stocks in reaction to those estimates.

Since the close of trading on the Wednesday before Thanksgiving, the Retail HOLDRS (RTH) ETF has returned 4.1% vs. a 7.3% gain for the Dow Jones Industrial Average (^DJI).

But let's look forward.

It's obvious that old-school, brick-and-mortar retail is in a tough spot. Aside from a lousy job market and high commodity prices, there are two major structural problems that I can't get out of my head:

The first is Amazon.com (AMZN), which is growing like a weed due to its strategy of driving revenues at the expense of margins. (See: Is This the End for Amazon Bulls?) It could hit the $50 billion revenue mark this year, and hit $100 billion within a couple of years, taking an even bigger chunk of consumers' wallets with it.

And secondly, the US has already been carpet-bombed with chain stores, meaning there isn't much room left for new stores from the likes of Target (TGT), Wal-Mart (WMT), and Home Depot (HD), meaning growth rates tend to just barely surpass nominal GDP, if at all.

The good news for investors (and bad news for employees) is that a lot of big-name chains have been shutting down locations this year -- Gap (GPS), Abercrombie & Fitch (ANF), Lowe's (LOWE), Pacific Sunwear (PSUN), Borders (BGPIQ.PK), GameStop (GME), etc.

However, it's still tough to assess when exactly the broad base of publicly traded retailers will shrink to the point where the cutthroat environment crystallized on Black Friday cools off.

Until then, the industry will remain populated with value traps.

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