Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

The Death Spiral

Falling Apparel Sales Show Income Inequality Hurting Retailers

Income inequality and its uglier twin, income insecurity, are having a very corrosive effect on the U.S. economy. The retail sales figures from June show that large numbers of Americans no longer have extra money for items like clothing.

Americans are increasingly spending less money on clothes and home furnishings,  Business Insider reported. Apparel (clothing and shoe) sales fell by 1.5% in June 2015 alone. This trend is having a terrible effect on some retailers, particularly old-school department stores.

Total retail sales fell by .1%, while home and furniture purchases fell by 1.6%, USA Today reported. It looks as if rumors of an economic recovery are greatly exaggerated. Retailers are hurting, and more hurt can be expected.

Macy’s (NYSE: M) reported a revenue growth rate of -.75% and a free cash flow of -$190 million on April 30, 2015, YCharts data indicates. The JCPenney Co (NYSE: JCP) was in even worse shape—its revenue increased by 2%—but it also reported a free cash flow of -$272 million and a net income of -$586 million. Kohl’s (NYSE: KSS) reported a revenue growth rate of 1.3% and a free cash flow of -$74 million.

Revenue Growth Rate Shows How Income Inequality Impacts Retail

Not even retail giants were immune. Walmart Stores Inc. (NYSE: WMT) reported a revenue growth rate of -.12% on April 30, 2015, and retail success story Costco Wholesale (NASDAQ: COST) reported revenue growth of 1.19% on May 31, 2015. One of the few retailers that reported impressive revenue growth was Dollar General (NYSE: DG), which reported a rate of 8.77% on April 30. Another small box discounter, Dollar Tree Stores (NASDAQ:DLTR), also did very well, reporting a growth rate of 8.82% on the same day.


The only department store operator that did well was Nordstrom (NYSE: JWN), which reported a revenue growth rate of 9.69% on April 30, 2015. That was even higher than the rates at the dollar stores.

Get the picture, folks—revenues at dollar stores, which cater to the low end of the income scale, and Nordstrom, which sales to the affluent, are growing. Revenue at retailers that cater to the middle class—Walmart, Costco, Kohl’s, Penney’s etc.—are growing slowly or shrinking. This seems to verify popular suspicions about income inequality in America.

Healthcare Costs Lead to Income Insecurity

Another cause of this is growing income insecurity—the inability of many Americans to make enough money to cover basic expenses. A report from Morgan Stanley quoted by Business Insider indicates that millennials, people born between 1980 and 2000, have less money to spend on clothes after covering expenses such as rent.


A major problem is healthcare, the fastest-growing expense facing Americans. Morgan Stanley discovered that the amount of money average Americans spent on housing and utilities stayed about the same between 1972 and 2014, rising from 17% to 18% of the family budget. Yet the amount the average household spent on healthcare grew from 8% of the budget to 17% in the same period.

Another sure sign of growing income insecurity was that consumer borrowing increased by 6.5% in May 2016, according to USA Today. That indicates that more and more Americans are having to turn to consumer credit to cover household expenses.

One has to wonder what sort of future department stores will have in this situation. Walmart, after all, has the options of opening small box stores to compete with Dollar General and of expanding its fast-growing ecommerce operations. What do companies like JC Penney and Kohl’s do? Will they end up in the same situation as Sears Holdings (NASDAQ: SHLD), selling off real estate assets to simply pay the bills?

Sears reported a revenue growth rate of -25.3% on April 30, 2015. It also reported a net income of -$1.583 billion and a free cash flow of $579 million on the same day.

Economic Growth Undermined

It looks as if basic retail and our economy could be in serious trouble. The present economic policies in the United States are not looking good and need to be changed now before we see large-scale collapse in many sectors.

In such an environment, it is easy to see why populist and socialist insurgent presidential candidate Bernie Sanders was able to attract a crowd of 11,000 people to a rally in Phoenix with his demands for a political revolution. Sanders’ event was so successful that it had to be moved to a new, larger venue, New Times reported. Sanders’ success in a red state shows how uncomfortable Americans are with the economic status quo and a growing willingness to consider formerly radical solutions as the market fails many Americans.

The retail numbers indicate that income inequality and income insecurity are starting to undermine and perhaps reverse economic growth. The problems need to be addressed now if we want a functioning economy in the future.