Retail sales numbers down, only to get bigger
The retail sales number was down 2.8% from last October. This is the biggest drop in year to year retail sales since the beginning of the index, topping the 2.65% drop recorded in November 2001. Whats most startling is that this comes in a month without the holiday boost. Holiday sales in October are generally slim, who knows what the numbers could look like when this years holiday season is compared to last years.
The changing times are obvious with consumers spending less due to a crippling credit market and a general consensus that the economy is nearing or in a recession. Back in September I recommended shorting retailers that thrive on holiday sales. Gamestop was one stock that I loved to hate among many others. With Circuit City’s failure I think we could also extend the shorting to other retailers such as Best Buy and Staples which are going to have a hard time pushing low profit margin and expensive products.
This holiday sales season will like cause a huge contraction in the retail outlet business. Many retailers anticipate the 4Q rush to make up for lackluster sales throughout the year. This year, however, the weak retail season throughout the year and a greatly weak 4Q will push many out of business. Even after a drop of 40%, I’d still be short Gamestop. The business is going to have a heard time with its trade in and consignment business when it comes to competing with online retailers in the same industry.
Hopefully we’ll see a flush of the retail business in the spring of 2009 to kick off a strong year for the remaining contenders. Those that are still around after a terrible 2008 are going to have plenty of more business with less divisions between competition. After Circuit City finally disappears from the market, its time to buy Best Buy and other competitors.
