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TMFDeej (99.27)

The United States has too many stores

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June 15, 2009 – Comments (15) | RELATED TICKERS: WMT , BBY , BBBY

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. 

Deej

Disclosure, I own high-yielding GLW bonds in real life but no stake in any other company mentioned.  I own WMT in CAPS.

15 Comments – Post Your Own

#1) On June 15, 2009 at 11:30 AM, mrindependent (54.63) wrote:

I absolutely agree.  In my CAPS portfolio I am currently short the following consumer dependent stocks:  M,BGP,SHLD,SBUX,TLB and CCL.

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#2) On June 15, 2009 at 11:35 AM, ATH001 (< 20) wrote:

Hi Deej, thanks for the post. Could you please advise where you got the info? I am in retail in South Africa, and would love to know where we stand in that picture.

Thanks in advance,

Luis

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#3) On June 15, 2009 at 11:47 AM, JakilaTheHun (99.94) wrote:

"Square feet of retail space per person" might not be a very useful metric.  For one, it might be measuring sprawl more than it is measuring retail options per person.  That may very well be why European countries have such a lower amount of square feet per person.  Europe is much more densely populated and there are higher property costs in many of the major Western and Central European cities. 

Even Canada and Australia are more densely populated in a sense than the US.  It's just that they are densely populated in smaller areas, with Australia's population mostly being concentrated in certain areas of its east coast, while Canada's population is mostly concentration in the very southern extreme of the country. 

Not that your hypothesis on there being too much retail is incorrect.  I just don't know how useful of a metric that would be. 

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#4) On June 15, 2009 at 11:53 AM, JakilaTheHun (99.94) wrote:

Also, consider that mega retailers like Wal-Mart, Target, Best Buy (their stores are fairly large), etc., could drive up those numbers significantly in the US.

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#5) On June 15, 2009 at 12:36 PM, MattH42004 (30.86) wrote:

Jakila makes some great points about those numbers. I don't argue with the idea that the US has become to dependant on consumption, and our retail landscape reflects this. However, those numbers probably inflate the degree to which this is true. I also don't hate retail as much as you do Deej. I think there will be a good deal of bankruptcies and consolidation. So while the survivors will be dividing a smaller pie, the slices will be bigger. Sort of like retail world Darwinism. The strong will come out stronger. 

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#6) On June 15, 2009 at 12:53 PM, gunark (78.04) wrote:

I would add SRS as a strongly-related stock here -- as in this double inverse on CRE will pop up viciously once all the analystis come off the Liz Claiborne fragrance samples they've been getting high on in their local over-leveraged malls.

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#7) On June 15, 2009 at 1:00 PM, TMFDeej (99.27) wrote:

Hi Luis.  Thanks for reading.  I got the chart and the data on retail sales from a research report by Argus.  It was actually a fairly small note that did not include data for South Africa.  Sorry that I could not be of more help.

Deej

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#8) On June 15, 2009 at 1:07 PM, portefeuille (99.60) wrote:

> 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. 

--------------------

and in the USSR in 1986?

0.189 square feet of sales space per capita.

(see table 3.11 here)

I also like the following:

--------------------

Per capita is a misspelled phrase from Latin "pro capite" phrase meaning per head ...

--------------------

(from here)

 

 

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#9) On June 15, 2009 at 1:16 PM, catoismymotor (< 20) wrote:

I have read a few times about how the government should move in and bulldoze foreclosed homes. I have to admit that I like the idea of doing the same for foreclosed strip malls. There are many that have been built in the last five years near my home and not one has even come close to being half occupied. How many dry cleaners, nail salons, tanning salons and chinese take out places do we need per square mile? I say knock them down, build a temporary park on the lot until the market picks up.

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#10) On June 15, 2009 at 1:32 PM, portefeuille (99.60) wrote:

When I read about too many "strip malls" in the second paragraph I first thought of some place like Pottersville. I kept reading and thought it must be something more mundane. Then I looked it up. Very disappointing ...

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#11) On June 15, 2009 at 1:43 PM, mikecart1 (99.21) wrote:

Its not that there are too many stores, there are too many worthless stores. Go to any mall and find what stores are really needed. Like stores that you actually need to go into regularly.

90% of all stores should just be eliminated and moved to online stores. The people wouldn't have to pay for the overhead and the employees and the store-owners would make the same amount of money or more having to pay a lot less.

This goes to those specialty stores that have maybe 10-20 customers a day.

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#12) On June 15, 2009 at 2:45 PM, ceejayoh (61.88) wrote:

And that is why commercial real estate is the next shoe to drop on the banks. When there is no market to rent it, the payments cannot be made and the malls and office buildings will go into forclosure.

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#13) On June 15, 2009 at 3:05 PM, mandrake66 (77.99) wrote:

In Europe, the country with the most retail space per capita is Sweden, but has only three square feet of store space per capita. 

And 2/3 of that is IKEA stores.

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#14) On June 15, 2009 at 3:26 PM, prose976 (< 20) wrote:

What you're missing here is that a capitalistic democracy functions on the premise that we are all free to open stores, purchase things, boycott, etc.  We are free to do these things, fail at them, elect not to spend out money, etc.  Perhaps the one part of our system is the failure on the individuals part to maintain a balance of debt and repayment.  Over-leveraging is the single most damaging component of our system.

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#15) On June 15, 2009 at 5:12 PM, TMFDeej (99.27) wrote:

Thanks for reading everyone.  Here's a follow-up post on the same subject:

The downsizing of the U.S. consumer

Deej

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