Wednesday :: Dec 28, 2005

The Ebeneezer Claus

by pessimist

Money is made at Christmas out of holly and mistletoe, but who save the vendors would greatly care if no green branch were procurable? One symbol, indeed, has obscured all others--the minted round of metal. And one may safely say that, of all the ages since a coin first became the symbol of power, ours is that in which it yields to the majority of its possessors the poorest return in heart's contentment.

- George Gissing, The Private Papers of Henry Ryecroft

A poor return in heart's contentment wasn't all that many retailers got, no matter what the happy talk about how well things went, as this excerpt displays:

Holidays Deliver 'Solid' Payoff for Retailers

Retail sales posted a 'solid' gain during the holiday season — thanks in part to heavy spending on home furnishings and consumer electronics — but fell short of last year's results, according to one of the first major holiday sales reports released today.

And aren't we supposedly in the midst of realizing King George's Tax Relief-based Economic Boom? Aren't credit sales up?

Nationwide sales — including everything from gift cards and food but excluding gasoline — between Nov. 25 and Dec. 24 rose 5.2% compared to last year, according to an estimate by Mastercard Advisor's SpendingPulse report. Sales transactions over $1,000 were up 8.7%, according to the report, which is based on purchases made on Mastercard cards in addition to estimates of sales made with other cards, cash and checks.

But even this didn't quite work out as predicated by Bu$hCo:

This year's gain, which was adjusted to take into account an extra sales day, was down from the 8.1% increase registered last year.

Things might have been rosier if not for Police closing a supermarket that opened on Christmas.

An Asian supermarket violated the state's centuries-old blue laws by opening on Christmas Day, police said. Police officers closed the Super 88 Market in Boston's South Bay neighborhood around noon, sending some opportunistic shoppers home empty-handed. The blue laws require all stores -- except for convenience stores and gas stations -- to close on Thanksgiving, Christmas and New Year's Day.
"I think it's kind of archaic," said James Creelman, a Boston resident who was turned away as he tried to enter the Super 88 to purchase butter he needed to cook Christmas dinner. "Who is some religious type to tell me I can't get a pound of butter?" he asked.

Why weren't the fundies out there picketing in protest? They weren't in church that morning, now were they?

NOTE: Before we flip the page, I will cover the two news sources that presented the inversion of the debt curve toward the end of this post.

Despite the rosy economic happy talk circulating about how well retailers did, things aren't looking too good for many retailers:

Retail Store Closures to Follow Sales
December 27, 2005

Just as post-holiday sales are sure to follow Christmas, there's a long tradition of store closings following the big year-end sales as weak and struggling retailers call it quits. This year will be no different, with what looks to have been a less-than-stellar holiday retail season combining with a flurry of industry mergers to put even more stores than usual on the endangered list.
Although the national economy is growing at a healthy 4.1% rate based on third-quarter gross domestic product, there was little to ignite shoppers' interest this year.
Adding to retailers' woes is the growth of online sales. Through Christmas, non-travel online consumer spending was on track to hit $26 billion, up 18% from last year, said Vikram Sehgal, an analyst with Jupiter Research in New York.

[S]tore owners shouldn't count on a boom in post-holiday gift card spending to save them. Although nearly 56% of people surveyed say they received a holiday gift card — up from about 48% last year — they will be using those cards just when the stores are offering their biggest discounts. Many retailers count on the period between Thanksgiving and New Year's Day for a third or more of their sales, which provides an incentive to keep underperforming stores open through the holidays.

Now, with Christmas over, Whitehall Jewelers Inc. plans to close 77 of its 389 locations.

Levitz Home Furnishings Inc. is closing 35 of its 114 stores.

Casual Corner Group will close or sell all 525 of its stores in 42 states and Puerto Rico.

Retailing behemoth Wal-Mart Stores Inc. was one of the companies that looked likely to hit its target of a 4% gain in sales this Christmas, analysts said. Yet even so, its moves to maintain growth continue to send ripples through the industry.

For example, the nation's largest retailer is shutting down stores across the nation to open more Wal-Mart Supercenters, said Robert Bach, national director of market analysis for real estate company Grubb & Ellis.

And when a Wal-Mart leaves a shopping center, surrounding stores suffer, said Gregory Stoffel, a retail strategist in Irvine.

"What was a thriving center with a Wal-Mart anchor ends up being a has-been center that's going nowhere," Stoffel said. "I see that everywhere."
The bottom line, said retail analyst Walter Loeb of Loeb Associates in New York, is that "we are over-stored."

Over-stored? That is being dealt with as Walmart's competition falls by the wayside:

Media Play chain to shut all stores.

Columbia, Missouri retailer Puckett’s to close.

One of [Charleston, South Carolina]'s oldest retail merchants, Altman's Furniture Co., is shutting its doors.

In addition to Altman's closing, South Carolina has some bigger, more widespread economic difficulties:

State's jobless rate rises for fourth month in row

South Carolina's cloudy labor market grew darker in November. The state's unemployment rate rose for the fourth consecutive month to 7.1 percent, compared with 6.9 percent in October and 7 percent a year earlier, according to figures from the Employment Security Commission. The increase was driven by layoffs in the battered manufacturing industry and seasonal declines in tourism jobs. Holiday retail hiring was smaller than usual. The state added 800 jobs between October and November, but 5,500 more people were working or looking for work.


Closing of call center means 150 job losses

Denver-based First Data Corp. is closing its call center here in February and eliminating all 150 jobs as part of a cost-cutting effort. The credit card transaction services company said it would take a charge of about 5 cents a share in the fourth quarter for the cost of laying off 1,000 workers, about 3 percent of its work force. The firings include all employees of the Summerville center.

South Carolina faces still other economic troubles, but I'll present that news after I finish with the other closing retailers first:

In Detroit, Damman Hardware to close after 85 years, following Frank's Nursery & Crafts, Hansel 'N Gretel, a children's shoes and dancewear store in Birmingham, and jeweler Sidney Krandall & Sons.

Washington's last local department store, the Hecht Company, is closing, joining former competitors Lansburgh's (closed in 1972), S. Kann Sons (closed in 1975), Garfinckel's (closed in 1990) and Woodward & Lothrop (closed in 1995).

For nine regional department stores whose grand family names have defined communities for the better part of a century - Kaufmann's in Ohio, Famous-Barr in Missouri, Meier & Frank in Oregon, to name a few - it has come to this.
Shoppers say the stores have already lost their local identities and, with it, their customers' loyalty.
It is an ignoble denouement for a collection of family merchants that profoundly shaped American culture, turning what had merely been an idea - a consumer democracy, where fashion and luxury were available to anyone to try on, buy or aspire to - into a brick-and-mortar reality.

The regional department store has struggled for relevance and profits for decades. Its sprawling, one-stop-shopping structure, so vital to its early success, made it an all-too-easy target for competitors.

Other merchandisers held on to their customers' loyalty until the end, but now that they are about to become a part of history, history is becoming a part of them in retirement:

Abdalla's customers say goodbye
After 110 years, Lafayette [LA] landmark closing doors for good

In early October, owners Barbara Abdalla Black and Tom Black announced that due to declining revenues, the store would be closing after 110 years of operations. The store has remained open throughout the fall, but will close its doors for good today.

Kate Latimer, an Acadiana native who now lives in Washington, D.C., said the store's closure represented Lafayette's changing business landscape. "It makes me sad, because I love Abdalla's," Latimer said. "Every time I come home, it seems like a little more of Lafayette is gone. I hate to see the Oil Center changing from retail to business office space."

Jackie Landry said she has shopped at Abdalla's locations in Opelousas, downtown Lafayette and the Oil Center. As she browsed through racks of pants Friday, she said it was difficult to realize the store would actually be closing. "It feels kind of funny," she said. "It's so strange that an old institution is closing. It's sad because not just here in Lafayette, but all over, the small, independently owned businesses are having to close down. I guess it's out with the old, in with the new."

Meredith Lalonde said she has been an Abdalla's customer her entire life and has always felt the store was operated a bit differently from major retail outlets. "It's like a family store, just the way that the people run it," Lalonde said. "It's sad to see it close. I'll definitely miss coming here."

For store employee Claude Blanchard, seeing the final customers lined up at the store's registers felt a bit like losing a family member. "It's really hard after this many years," said Blanchard, who has worked at the store for 39 years. "It's been a big part of my life. It's not just work, it's more like being a part of a family."

Abdalla's isn't the only retailer with a sense of history:

Dexter Avenue men's store to close

Right On Stein's, a men's clothing store on Dexter Avenue owned by Norman Dasher, has been part of the downtown Montgomery [Alabama] landscape for decades. Dasher, 83, is saying goodbye to the life he has known for 45 years, is closing up shop but hasn't decided on an exact date. "I'm not getting younger and I don't see any future here anymore," he said.

Dasher said he has thought about closing his store for about 10 years. Running a retail business downtown is not easy, he said. "Things have been going down. If it wasn't for the buses running and the people working downtown, there would be nothing," he said. "There's nothing to bring them down here. If I had this store in the mall, you wouldn't be able to walk in and out of here because it would be so crowded."

An example of what Dasher said about the demise of downtown retail can be found in the windows of the buildings that once housed furniture and clothing stores on either side of his business. Instead of merchandise, passers-by peer into the glass only to see signs advertising that the space is for sale or lease.

Dasher already has an idea of what he'll do when he retires. "I landed on D-Day and I lost two buddies over there (Normandy, France)," he said. "I want to go back and see what it's like now."

Not all retailers are looking back. Retailers with a sense of the future reached out to get Web shoppers in their doors. This approach worked very well for one specialty retailer:

Buford toy train seller was saved by cyberspace

Scott Griggs owns, the largest seller in online auction company eBay's toys and hobbies category.

When he was 15, Griggs started fixing and trading model trains in his parents' garage in Toledo. He had a basement full of model trains and took a correspondence course in small appliance repair to keep them running. Hunting down trains to sell for a profit helped pay for his college education. But rather than land a job at a toy maker after graduating, he went to work for General Electric in Buford. "I really wanted to open a train store," he said. "I was working for corporate America, and just really wasn't where I wanted to be."

So, he hunted. He stalked train shows, seeking rare pieces to resell. He sold trains from his basement. About 1990, he opened a sales booth at the old flea market at I-85 and Jimmy Carter Boulevard. Somehow, he talked his wife Milinda into sitting there five days a week. Some days they would buy or sell a train. Some days, they wouldn't.

Griggs realized he couldn't pursue his dream with half measures. He quit his management job at GE and opened a store in Lawrenceville. Then another. Then a third.

Then he went broke.

After the bankruptcy, he thought his dream of making a living at his hobby had died. Hunting down trains had been a lifelong love. About that time, an online auction site had begun to grow into an Internet phenomenon. He discovered eBay as a way of selling off his remaining inventory.

He also discovered that he could find a boxcar selling for $50 at a swap meet and sell it online for $100. He sells more trains online to people in other countries than to live humans standing in front of him. And that's the way he likes it.

But gambling on the big swapmeet payoff doesn't always pay, as South Carolina retailers are discovering:

N.C. is getting Powerball, and York County retailers fear fewer hopefuls will head south

South Carolina's lottery looks to take in more than $1 billion this year. North Carolina players account for 12 percent of South Carolina's overall lottery customers, meaning when North Carolina starts its lottery in April, South Carolina potentially could lose around $120 million in revenue a year.

S.C. lottery officials, retailers and experts all agree there will be money lost in York County when it comes to tickets sold for the multistate jackpot, but they say it's too early to pinpoint an exact amount. Eight of the state's top 10 lottery retailers are in York County near the state line, and some of those stores in Fort Mill and Clover estimate that 80 percent of their lottery sales come from across the border.

At Miller's Produce & Farm in Fort Mill, where up to 85 percent of lottery customers are from North Carolina, manager Linda Ewing expects to see business cut by at least a quarter and perhaps even half by the time North Carolina gets Powerball up. Though Miller's store also sells gas, produce and other items, losing a large percentage of North Carolina's Powerball players would have consequences for her store. And she's already started to plan. "We will be cutting hours. We will have some cutbacks," Ewing said.

At other stores, especially those where business is driven primarily by lottery sales, the mood is even more ominous. "We're expecting the worst and hoping for the best," said Michael Walters, manager at Lottery Supercenter on Carowinds Boulevard.

[T]he days of York County being the state's top lottery retailer will be over, Thompson said. "You're not going to have eight out of 10," he said. "You may have one or two."

The happy talk attempting to cover up the poor showing of the retailers isn't fooling investors, who dumped a lot of shares Tuesday:

Tough session on Street
Major gauges each lose around 1 percent as investors bail out of a slew of stocks.
December 27, 2005

Stocks tumbled Tuesday, with investors bailing out of a variety of sectors in a broad-based end-of-the-year selloff, The Dow Jones industrial average (down 103.49 to 10,779.78), the S&P 500 index (down 11.75 to 1,256.91) and the Nasdaq composite (down 22.27 to 2,227.15) all lost around 1 percent, according to early tallies.
The losses erased the Dow's slim gains for the year and left the S&P 500 up 3.8 percent and the Nasdaq with a 2.4 percent gain, with just three full trading sessions left in 2005.
Investors also kept an eye on the Treasury bond market, particularly after the 10-year note yield briefly fell below that of the two-year note, inverting the yield curve for the first time since 2000.
Recessions followed the last two times the curve inverted, but there's been debate this year about whether an inversion is still a reliable indicator of recession.

There doesn't seem to be as much doubt in this article:

U.S. stocks fall as energy, retail shares lead drop
Dec 27, 2005

U.S. stocks fell on Tuesday as a drop in energy companies' shares dragged indexes down after crude prices retreated and a slide in online retailers helped drive the Nasdaq lower. Shares of online retailers, including Inc., declined on reports that sales grew at a slower pace during the holiday season.

Investors also may be taking profits in anticipation of a sell-off early next year, said Evan Olsen, head of equity trading at Stephens Inc. "A lot of people have memories of last year when the market sold off in January and February. After November's run up, some people are taking some of the chips off the table, and don't want to get caught in another sell-off," he said.

Demand for stocks also fell after short-term Treasury note yields rose above long-term yields for the first time in five years, an event that may signal a slowdown in economic expansion. The yield on the benchmark 10-year Treasury note fell below that of the two-year note on Tuesday for the first time since December 2000, in an inversion of the yield curve.
This event, in the past, has indicated the start of a recession. "So far it's a mild inversion and markets were expecting it," said Jason Schenker, a U.S. economist at Wachovia Corp. in Charlotte, North Carolina.
"But if the inversion is to persist or deepen, then it may be interpreted as a real bear sign."

Even the expert happy talkers over at Motley Fool have some sad situations to report:

An Overcast Tuesday Morning
December 27, 2005

Closeout retailer Tuesday Morning had a pre-Christmas surprise for investors. Without waiting to see whether last-minute shoppers would boost its financial fate, the company lowered guidance for the fourth quarter ending Dec. 31.

This wasn't a just-by-a-hair miss. Analysts were looking for revenue to top $360 million. The company's upper-range forecast was $335 million. Even more telling was fourth-quarter earnings per share: Analysts expected $0.96, and the company says the best it expects is $0.84 a share. Yikes!

While the company used the press release to tout its excellent return on investment, investors would be wise to note that same-stores sales will be down 4% to 4.5% this year (compared with 2004). Sales for stores open more than a year have been weak every quarter this year and fell 1.7% for all of 2004 as well.

While the company has proved adept at making money, the accelerating downturn in same-store sales is not good news for long-term investors or its returns on invested capital. The downturn is also puzzling, given a "SpendingPulse" study in today's Wall Street Journal.

For now, investors would be wise to look at discount retailers that are turning in positive same-store sales results ...

There is no doubt that the bigger retailers like Walmart are the future. But what will occur when they are the ONLY retialers?

Is there any doubt that Walmart slogans of 'low prices' will become as historic as the memories of their competitors as fewer and fewer retailers remain in business? As competition decreases, so does restraint in pricing, with the idea that being the only source for merchandise 'justifies' higher prices, which in turn generates higher profits. But as merchandise cost goes up, less will be bought by the remaining customers due to the ongoing decline in real wages.

The investors can see this, which is why they are getting out of many retail stocks. They are the ones to watch, for their actions are driven through self-serving observations. Those who still spout economic happy talk in contravention to these investor actions are getting paid to do so - and as profits decline, they will join those of their former audiences in wondering how to make ends meet. They will wonder how they are going to compete with the day laborers from other countries who are willing to stand in the parking lot of the local Home Depot until someone offers them a job for the day.

At the rate we are going, those parking lots will be full of such day workers - and empty of customers.

Sic Semper Retailing.

A person who can't pay gets another person who can't pay to guarantee that he can pay. Like a person with two wooden legs getting another person with two wooden legs to guarantee that he has got two natural legs. It don't make either of them able to do a walking-match.
- Charles Dickens, A Christmas Carol

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