Is the Retail Industry Finally Emerging from a Death Spiral?
Despite an apparent reversal in the fortunes of traditional retailers this year, experts aren’t sold on the confidence Wall Street is showing on these old-guard businesses.
Share prices for department stores like Macy’s and Dillard’s, for example, have risen more than 55 percent this year, beating out Amazon’s 50 percent, but there could be more behind these numbers than simple consumer confidence.
The Complicated Retail Rally
Although better-than-expected earnings are appearing all over the board, from Home Depot to Walmart, experts caution that it’s far too soon to assume that traditional retail is rallying. In fact, experts predict that this gain is only temporary and influenced more by one-time gains like the recent U.S. tax overhaul.
“Retail has received a second wind from the tax cuts, which we think will ultimately fade,” states a report from Morgan Stanley analysts, as reported by the Wall Street Journal. “If so, look for the stocks to roll over as well.”
Jim Tierney, CIO of Concentrated U.S. Growth at AllianceBernstein, indicated that he would be very cautious about retail for the longer term. The Wall Street Journal reports that he is concerned about a “dead cat bounce,” an industry term for a temporary recovery from a prolonged value decline. Ultimately, the dead cat bounce results in even deeper declines.
Another factor that is potentially playing out in these numbers was the effect that a temporarily weak dollar had on international spending. Because the currency was weaker in the prior quarter, shoppers from overseas spent more on goods.
All Hope is Not Lost
Despite the naysayers, there are a few indications that some amount of the recovery retail is seeing is, in fact, for real.
Along with the better than expected earnings reports from retail leaders, retail sales overall have increased 5.9 percent year over year. These gains are being attributed to rising wages, low unemployment and an improvement in consumer confidence.
Macy’s, for example, is seeing rebounding same-stores sales numbers. This is partially due to its own efforts to meet the demands of the modern shopper. The department store has put considerable resources toward revamping its shoe and fine jewelry departments, as well as working harder to attract international customers.