Some people have contested my statement that there are thousands more retail stores in the U.S. today than there were in 2007. Yes, many mom and pop stores have gone out of business, but the big boys continued to expand in the face of reality. The mall-based mega-retailers dominate the retail landscape in this country. Here is a partial list of the biggest retailers in the U.S. and their store counts.
Store - 2007 Store Count - 2010 Store Count
Wal-Mart (NYSE:WMT) - 6,756 - 8,416
Best Buy (NYSE:BBY) - 873 - 1,297
Target (NYSE:TGT) - 1,591 - 1,752
Costco (NASDAQ:COST) - 488 - 567
Lowe's (NYSE:LOW) - 1,534 - 1,710
Kohl’s (NYSE:KSS) - 929 - 1,089
Walgreens (WAG) - 5,997 - 8,001
Rite-Aid (NYSE:RAD) - 3,333 - 4,773
TJX (NYSE:TJX) - 2,430 - 2,761
Just these nine well known retailers alone have added 6,435 stores since 2007. Some of the stores were international, but the vast majority were opened in the U.S. This increase in store counts in the face of reality is the ultimate in CEO hubris. Inflation adjusted retail sales since 2007 in the U.S. are down 19%. This is a recipe for disaster. Americans must deleverage over the next decade. They have no choice. Their retirement savings levels are pitiful. They will be forced to stop buying crap. The boomers are leaving their high spending years and entering the forced saving phase of their lives, whether they like it or not. Every retail CEO in the country should recognize these facts. But still, they relentlessly expand. A fool and his company are soon parted.
The lifeblood of retail expansion is same store sales. If same store sales do not increase, any store count expansion becomes a death march. Below is a chart of the same store sales increases/(decreases) for November of each of the years listed for six of the largest well known retailers in America. With a base year of 2006, I’ve shown what the sales level for comparable stores is today versus 2006. This includes the outstanding growth year of 2007, before the financial crisis. Even a CNBC anchor should be able to realize that the “Best” retailers in America have lower sales today than they did in 2006.
Now for the kicker. Inflation since 2006 according to the BLS has been 10%. Therefore, on an inflation adjusted basis, sales for these retailers since 2006 are down by 7% to 17%.
Today, Best Buy reported atrocious third quarter sales figures. Best Buy is rightly considered one of the best run retailers in America. The Apple iPad is a mass sensation. Consumers are supposedly spending again. The age of austerity is over according to the mainstream media. Best Buy’s biggest competitor, Circuit City, went out of business two years ago. The world was its oyster. But somehow, the yellow brick road turned from gold to something else.
In the U.S., Best Buy’s same-store sales dropped 5%, while total sales fell 3% to $8.7 billion. The company estimated that its market share declined 1.1 percentage points, losing traction in TVs and gaming software, and it also expects its share for the year to decline. By categories, U.S. sales of consumer electronics, which make up more than a third of Best Buy’s total domestic business, fell 11%, while entertainment software sales, which make up 15% of the total, slid 14%.
It seems that the storyline being sold to the American public by the media is a load of bull. Best Buy is the first of many retailers to be blindsided by reality. Americans are running out of money. They’ve used up all the equity in their houses. The credit cards are maxed out. Wages are stagnant. Retirement years in a brown cardboard box awaits delusional Boomers unless they stop spending and start saving.
Best Buy’s results are the canary in the coal mine. Delusional retail CEO emperors across America need someone to step forward and tell them they have no clothes. Continued expansion in this environment will lead to financial ruin, massive layoffs and bankruptcies. Based upon history and the known hubris of most CEOs, there will ultimately be thousands of vacant rotting rat infested big box eyesores dotting the landscape over the next 10 years. Maybe they can be converted to shelters for homeless delusional Boomers who forgot to save for their retirement. Ask the former CEOs of Montgomery Ward, Circuit City or Blockbuster if it can’t happen.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.