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These Charts Fascinate Me

I am absolutely fascinated by these charts. The first one isolates the clothing and shoes category, and compares at government-reported retail sales versus the inventory-to-sales ratio. From 1993 through 1Q2007, the inverse correlation was like clockwork. Sales go up while inventory/sales go down and vice versa (i.e. little respect for inventory management). But starting in 2007, the two became one. For the past year and a half, the inventory/sales ratio fell while sales were falling. That’s a first for US retail.
  • We can’t even blame this on the fact that it is government data, which has historically been mediocre. The second chart maps the inventory/sales trend for public companies versus the US retail universe as defined by the government. Pretty close.
  • Yes retail is more mature now than it was 15 years ago. Yes there are better inventory management systems in place today versus the 1990s. But neither of these hit critical mass in 1Q07. What did happen in ’07 is that much of the margin benefit from sourcing and quotas went away. Then several quarters later the consumer turned down. We saw inventory cuts, and we saw them big time.
  • Then we had rising input costs. Now we’re faced with a strengthening dollar. Both of these last through ’09 at least in my opinion. In fact regardless of the consumer, I think we see this sourcing pressure (due to supply/demand imbalance out of Asia) through at least 2010.
  • We’ve all heard management teams say “we’re managing our business conservatively in this tough retail climate.” In other words “we don’t have a clue what sales will be like, so we’ll err on having less tied up in our supply chain.” A defensive strategy, but not one that promotes growth.
  • I still think that the bifurcation between winners and losers in this space will be massive heading into ’09.
Huge decoupling in 1Q07
Inventory/Sales for companies reporting comps vs government retail stats.

Putin, Cheney and Chicken

Recently, Putin accused the US of backing Georgia, and as a result he put the squeeze on the US chicken processors by banning exports from 19 US plants.

According to the FT, Dick Cheney, the US vice president, pledged on Thursday that Washington would stand behind Georgia, helping rebuild the country’s economy and promoting Georgian efforts to join NATO to protect against Russian aggression. If I’m a CEO of one of the major chicken processors in the US, I could not be happy with the Bush Administration. If Putin is punishing the US chicken processors because of our stance on Georgia, the future of that export market can’t be good.

Today in NYC, the CEO of SAFM said the loss of Russia as an export would be devastating to the industry. We also learned today that TSN is increasing its liquidity position by selling equity. Why would TSN be increasing it liquidity position as this point in the cycle? Interesting timing on the part of TSN!

  • I’m taking the cynical view of this move….


"Macro Time's" Math: Why It's Easy To See Why "They" Won't Cut Rates...

My inbox is getting berated with uninformed macro wanna be pundits telling me that today's stock market swan dive is the European Central Bankers fault.

Of course, in this business, bad team's point fingers when they are losing - so this emotional response is not a surprise. What is a surprise is that people refuse to respect the math. See the two 10 year charts below that overlay Europe's reality - stagflation.

There is a reason why Paul Volcker raised rates in a stagflationary environment. It's the only way out!
KM

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Sales/Comps: Breaking Point

Just for a minute, let’s stop worrying about ‘back-to-school’ and fashion trends. The bigger question is square footage growth and productivity in a consumer downturn.

The gap between sales growth and comp growth for US retail has widened by 4 points in 14 months ending August. What does that mean? Either a) new store productivity is knocking the cover off the ball, or b) square footage growth remains unchanged despite ominous signs that square footage growth is too high. I think we can all agree that it’s the latter.

We’re at a critical juncture. Looking at the past two recessions (90/91, and ’01) as well as 4 other notable consumer slowdowns (’94-’95, ’97, ’03, ’06), we’ve never seen this gap widen consecutively by more than 15 months. Something’s gotta give. Either a) the consumer needs to pick up, b) square footage growth needs to slow, or c) productivity continues to erode.

I’m hoping for option ‘B’. But as we say here at Research Edge, ‘Hope’ is a lousy investment process.

Sales growth less comp growth is heading the wrong way.

Eye On Putin Power: Hunting For Chickens?

That other VP of ours, Cheney, is in Georgia today...


The UK Swan Diving Olympic Training Center

As we push towards the 2012 Summer Olympics in London, it appears that the Brits are getting an early start to their training. This chart of British housing prices formed a perfect pike, and is now in free fall...

This morning's UK home price report came in at -12.7% year over year. Since this was an August report, this is relatively current compared to most of the US housing data that we've been issued.

The UK housing bubble popping may very well be louder than the one in the USA. That's very hard to imagine. But facts are what they are, and the race to the bottom of this cesspool of consumer leverage is heating up.

It is global this time, indeed.
KM

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