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What To Take From The U.S. Retail Numbers?

U.S. retail numbers have recently pointed to more brick and mortar store closures. (1)(2)(3)(5) Most of the carnage is happening with large chain stores that are located near or within indoor malls. Since a lot of people work in retail, these numbers may spell doom for the expected recovery in the U.S. There is no mention of Canada in any of the sources, but the trends are expected to be the same.

Many of the big name retail stores are closing stores. In their place, bargain stores are opening up in these indoor malls. (7) This is being interpreted as people want to spend less per item on what they are buying. There is also a trend towards smaller stores, which is not being picked up in these numbers. (5) This favours may specific brands at outlets rather than the "all in one" retail store which people tend to think of at an indoor mall.

If the retail numbers are so bad, why is the real estate related to retail performing so well? If your tenants keep closing stores, why does the land the stores occupy and the rents keep increasing in price? This seems to be happening in many parts of North America. (4)(6) Lastly, the elephant in the room is online shopping, which has been soaring over the last few years. (4) This online trend has boosted space for distribution warehouses, which is also changing shipping trends as more people buy goods online and get them delivered to their homes. There is also a trend to get goods delivered to stores; future stores may become mini warehouses rather than typical stores with minimal staff which would save money on shipping and retail personnel.

There is much to ponder. Maybe retail closures are signaling a paradigm shift and maybe we don't know how it is going to pan out? What is the net result? There will be fewer large stores, fewer malls, more online shopping and larger distribution centres. Typical jobs in retail will be lost and replaced with more service jobs and logistic careers. In an effort to reach the consumer locally, stores will be smaller, more brand specific and more nimble. What will the shopping experience be like? This depends on the consumer. If people want more service - these smaller centres can provide it. If not, today's stores will become do-it-yourself pick up depots. The retail story has many years to go before it is complete.

Sources:

1) http://money.cnn.com/2014/05/20/investing/stocks-markets/

2) http://www.zerohedge.com/news/2014-04-21/retail-store-closures-soar-2014-highest-pace-lehman-collapse

3) http://finance.yahoo.com/blogs/talking-numbers/why-the-retail-numbers-may-be-a-really-bad-sign-for-the-us-economy-201719749.html

4) http://www.cincinnati.com/story/money/2014/05/23/retails-online-revolution-boosting-industrial-real-estate/9509905/

5) http://www.cnbc.com/id/101353168

6) http://www.avisonyoung.com/fileDownloader.php?file=files/content-files/Research/Links/2014/AY2014CanadaUSForecastJan16_14Final.pdf

7) http://www.reuters.com/article/2014/03/16/us-usa-retail-realestate-idUSBREA2F0EL20140316

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.