In a decade, the retail industry will look nothing like it does now.
That’s what Warren Buffet, the Oracle of Omaha, had to say when asked about retail at the Berkshire Hathaway meeting in early May 2017.
“The department store is online now,” he added. “I have no illusion that 10 years from now will look the same as today, and there will be few things that surprise us. The world has evolved, and it’s going to keep evolving, but the speed is increasing”.
Granted, we’ve been hearing this for a while.
For months prior, retailers have been closing stores and filing for bankruptcy protection at rates not seen since the Great Recession. Brick and mortar retailers announced more than 3,200 store closings in the first five months of 2017.
Analysts are projecting that closings could soar to 8,600 before the end of 2017. Department stores like Macy’s, Sears and JC Penney are some of the hardest hit.
Just to survive, department stores have cut more than half a million jobs.
According to the media, it isn’t just the online behemoths that are crushing brick and mortar. Tapped-out consumers are impacting sales, too. CBS News says that about 75% of U.S. consumers are cutting back and scrambling just to cover their monthly living costs.
Yet, despite this disheartening news, there is still strength in retail.
Retail sales were up 0.4% in April 2017 – the biggest jump in about three months, according to the Commerce Department. The report stands in strong contrast to a string of poor earnings from Macy’s, Kohl’s, JC Penney and Nordstrom.
So where is all of the strength coming from?
According to the Commerce Department, online retailers saw growth of 11.9% year over year in April 2017. Of course, that kind of double digit growth is easier to do when sales at non-store retailers represented just 10.8% of total US food and retail sales in April.
In addition, some retail strength is emerging from home sales, which in the first quarter of the year hit their fastest pace in about 10 years.
As a result, retailers like Home Depot, Target and Lowe’s have remained some of the bright spots in a disheveled retail market.
Home Depot for example just reported that its net income rocketed 12% higher to $2.01 billion, or $1.67 a share, helped in part by sales of big-ticket sales. Same store sales were up 5.5%, as compared to expectations for 3.9%.
Target Stores recently beat Wall Street’s projections, and the stock soared 7.5% that day.
After restructuring and laying off 2,400 employees earlier this year, Lowe’s anticipates total sales for fiscal 2017 to increase by approximately 5%. Diluted earnings per share are expected to be around $4.64, compared to $3.47 the previous year.
The retail sector is struggling to adapt to new competition, and unprofitable stores and chains will not survive. However, this is not uncommon as many companies have to restructure as circumstances change.
The important statistic here is the retail sector, which rose 0.4% in April, was up 4.5% for the last 12 months. That’s twice the growth rate of the GDP.
And, there’s always an opportunity to make money, if you look hard enough. That’s the idea behind The Cheap Investor success.