The United States has too many stores
I have blogged numerous times in the past that I personally am very afraid of consumer discretionary stocks. Consumer spending had grown to over 70% of U.S. GDP over the past two decades fueled by over-leveraged consumers using MEWs (mortgage equity withdrawals) and credit cards to fund their over-consumption. In response to this voracious consumer demand, retailers kept building, and building, and building new stores.
I'm always blown away at how many strip malls there are when I go to visit my parents in a suburb of Memphis, Tennessee. It seems like there are malls within malls there. There's absolutely no way that their area needs half as many stores as it has.
Argus published a great note today that illustrates just how overbuilt U.S. retail space is. As of 2003, and I assume that the situation is a lot worse today than it was back then, the United States had the largest amount of retail space per capita, 20 square feet. The second place country, Canada, had only two-thirds as much retail space per person back then and again I'm sure that the gap between first and second place has widened since this study was published. In Europe, the country with the most retail space per capita is Sweden, but has only three square feet of store space per capita.
The U.S. consumes, it's what we do...so there's no way that we'll ever approach the three square feet per person of retail space that Sweden has, but as the U.S. moves into an era with more regulation and greater socialization of services like healthcare, its economic environment becomes more and more similar to that of Europe (we had gone too far in one direction and now we will overshoot in the other). I suspect that the amount of retail space per capita will ultimately have to shrink here. This is bad news for REITs with significant retail exposure and for the weaker public retailers.
I personally have no direct exposure to retail in my portfolio. The things that I do have that are somewhat exposed to the consumer, like Corning bonds (the company makes the glass for flat panel TVs among other things) are either high up the capital ladder or global companies that are not completely dependent upon the U.S. consumer.
To me, particularly after its recent massive run, stocks that are heavily tied to the fate of U.S. consumers are a very, very dangerous place to be right now. The only companies in the sector that I personally would even consider going near are discount retailers like Wal-Mart (WMT) or those that have already seen a major competitor go bankrupt like Best Buy (BBY) or Bed, Bath, and Beyond (BBBY)...interesting that their ticker symbols are so interesting. And even then the big moves in these companies have already probably happened.
Disclosure, I own high-yielding GLW bonds in real life but no stake in any other company mentioned. I own WMT in CAPS.