Yesterday’s unemployment figures reflect today’s consumer sentiment and tomorrow's announcement will not likely help matters.
The monthly RBC Consumer Outlook Index showed 46 percent of Americans plan to spend less this year than last year on holiday shopping, while 8 percent plan to spend nothing at all. What does this mean for retailers and retail property?
Half of families with children at home plan to spend less, with an additional 6 percent of these families planning to spend nothing at all, RBC reported. Meanwhile, 7 percent of Americans and 9 percent of families with children expect to spend more this holiday season.
Before this week’s midterm elections, consumers who believe the country is headed in the right direction slipped to 35 percent, down from 37 percent in October, and the number who believe the country is on the wrong track edged up two points, to 65 percent.
Nearly 70 percent of Americans think the U.S. economy and their own financial situation will stay the same or worsen over the coming year, RBC reported
"Even in the face of soft consumer confidence, spending accelerated in the third quarter. This disconnect will have to be resolved, and the first real test is upon us with the beginning of the holiday shopping season," said Marc Harris, co-head of global research at RBC Capital Markets. "If it turns out that the spending last quarter was simply the result of pent-up demand and consumers are returning to frugality just in time for the holidays, this will not come as good news for retailers."
Let’s face it, millions of Americans don’t have a job and millions more only have part-time work. There were not many raises or bonuses this year except on Wall Street (see the 7 percent/9 percent of consumers who plan to spend more).
The holiday season, primarily Christmas and Hanukkah, reflects the most important time of year for retailers. It represents nearly 75 percent of all revenue during the year. Without that revenue—and unemployment stagnant for the next 18 to 36 months—retailers will have greater difficulty holding up from 2011 to 2014, much less have any hopes of paying their leases.
The good news, if you want to call it that, is that Fed “fun” money can cycle through the stock market, boost values and make it look like these companies are actually worth something. A higher stock for Radio Shack means it might be able to cash some money out and pay the rent for another year.
Now, just imagine you’re the Fed buying $600 billion in bonds, you spend $1.25 trillion to purchase Fannie/Freddie mortgage-backed securities and overall debt is in the double-digit trillions of dollars. That’s like someone who earns $50,000 a year in debt for $1 million. And, don't forget the ongoing Temporary Guarantee Liquidity Program.
How, exactly, do you pay that back in your lifetime without going bankrupt—or at least in default? And, what happens to the creditors that lent the money and get nothing in return? This is the future we face as a globally connected financial system.
But this is only one part—consumer spending in the United States and its impact on retail. Let’s not forget consumer spending and how it affects industrial properties, warehouses, shipments and storage. What happens to UPS, Fedex and the postal system?
Meanwhile, consumers spend on the necessities—food, shelter (mortgage or rent) and clothing. For that reason, Walmart, Target and Kohl’s remain best bets for retail. Also, since nobody can live without a cell phone in this world or a television for that matter, the Best Buy will always survive at a certain level. I would also give Macy’s a pass.
But, say goodbye to specialty retailers in any city other than Washington, D.C.; New York City and, perhaps, Chicago, Los Angeles and Dallas.
Gateway cities survive, but insolvency continues to spread throughout regions of the country where consumers plan to rein in spending.
Robert Michaels
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