This holiday could kill retail's weakest links
A lackluster improvement in the industry means that at-risk retailers will not be part of boats in a rising tide.
By Douglas A. McIntyre, 24/7 Wall St.
The National Retail Federation (NRF) reports that the industry should post a 3.9% increase in sales to $602.1 billion.
On its face, the number looks good. However, if the forecast for November and December activity within the sector turns out to be correct, the weakest companies are unlikely to recover, perhaps at all.
The 3.9% improvement is misleading, because online sales, which make up an ever larger portion of overall activity, are forecast to grow by 13% to 15%, rising to as much as $97 billion.
This part of the data indicates how much of a challenge e-commerce has become to the traditional store model. In particularly, it supports the belief that Amazon.com (AMZN) will continue to grow at an impressive pace, at the cost of the aging physical store model. Additionally, weak retailers rarely have strong Internet sales, which puts them at another disadvantage within the industry.
The public corporations that are at severe risk are no different than those at risk at the start of the year -- J.C. Penney (JCP) and Kmart and Sears, which are part of Sears Holdings Corp. (SHLD). The only change is that a lackluster improvement in the industry means they will not be part of boats in a rising tide.
The situation for these retailers could become even more perilous, if the current shutdown of the federal government continues for a lengthy period. NRF Chief Economist Jack Kleinhenz remarked:
The economy continues to expand, albeit at an unspectacular pace. In order for consumers to turn out this holiday season, we need to see steady improvements in income and job growth, as well as an agreement from Washington that puts the economic recovery first. Our forecast leaves room for improvement, while at the same time provides a very realistic look at the state of the American consumer and their confidence in our economy.
The "Washington" part of the forecast becomes more troublesome every day, which means that retail sales across America actually could fall.
The retail industry is really no different from most others. Car sales improvements tend to help most companies in the sector. So do IT sales and media revenues. Public corporation retailers with sales that have fallen for several quarters will find that the pathetic activity within their sector will not help them -- at all.
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The solid report comes a month after the retailer closed all of its Canadian operations.
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