Market Mad House

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

The Death Spiral

Retail Growth Rate Raises Serious Questions about “Economic Recovery”

The latest retails sales numbers cast some serious doubt upon the claims of an “American economic recovery.” The Wall Street Journal was happy because US retail sales rose by .2% in August.

Call me a skeptic but that does not sound that great, in fact it looks as if both retail sales and the economy itself are stagnating. The sluggish sales are very worry because consumer spending makes up 70% of the US economy. The message this number; which based upon statistics provided by the US Commerce Department, is that average Americans simply are not spending.

What’s particularly worrying is that the rest of the economy things like utilities, manufacturing, and energy shrank by .4% according to Federal Reserve statistics cited by The Journal. If that’s true it means the economy actually shrank by .2% despite some good signs elsewhere including falling gasoline prices and rising employment numbers.

The truly frightening aspect of this scenario is that there is plenty of other evidence out there for sluggish retail growth. Just consider some of these year to year quarterly revenue growth rates at some of our largest retailers:

  • Walmart Stores Inc. (NYSE: WMT): .09% on July 31, 2015.
  • Costco Wholesale (NASDAQ: COST): 1.19% on May 31, 2015
  • Kroger (NYSE: KR): .9% on July 31, 2015.
  • Kohl’s (NYSE: KSS): .59% on July 31, 2015.
  • Sears Holdings (NASDAQ: SHLD): -22.49% on July 31, 2015.
  • JC Penney Co (NYSE: JCP): 2.72% on July 31, 2015.
  • Macy’s (NYSE: M): -2.6% on July 31, 2015.
  • The Gap (NYSE: GPS): -2.08% on July 31, 2015.
  • Abercrombie & Fitch (NYSE: ANF): -8.18% on July 31, 2015.
  • Aeropostale (NYSE: ARO): -17.5% on July 31, 2015.

These major retailers are either standing still or worse experiencing shrinking retail. At a few of them such as Sears and Aeropostale revenue is actually in free fall. These numbers show us two very frightening things folks, first the retail apocalypse is heating up and getting worse and second consumer spending is dismal.

Macy’s Plans to Close 40 Stores

The effects of this downturn are already being felt on Main Street and at the Mall. Macy’s is planning to close up to 40 stores because sales are stalling, Fortune reported. Those stores make up five percent of the company’s locations but only accounted for one percent of its sales.

It looks as if the operation of traditional department stores is no longer profitable in many American communities. The obvious reason why such outlets are no longer profitable is that people are longer buying from them. The most likely explanation for the lack of customers is that a large portion of the population simply lacks the income to shop at department stores.


That means the number of Macy’s locations could fall from 810 to 730 in the last five years – a decrease of around 80 stores or about 10% of the company’s locations. Another reason why those stores are shutting down is that they cannot be integrated with Macy’s online retail operations.

Another is that many of those stores are in locations that cater to lower and middle class customers or are in malls anchored by Sears’ stores or JC Penney locations. Sears as readers of Market Madhouse know is in the process of a massive meltdown because of Eddie Lampert’s mismanagement. Yet its demise could damage Macy’s but driving customers away from the mall.

Customers that come to buy a lawnmower from Sears might drop into Macy’s and buy a pair of pants. Now with Sears gone those walk-in shoppers are not there causing Macy’s revenue to shrink.

Wages show why Retailers are dumping the Middle Class 

It is also easy to see why Macy’s is dumping the middle and working classes: wages for the middle class have only increased by around 6% since 1978 while lower class wages have actually fallen by 5% since according to the Economic Policy Institute. To make matters worse wages for college graduates have actually fallen since 2000 according to the institute.


Meanwhile the upper class has seen its’ wages rise by 41% since 1979. Therefore it is easy to see why high end retailers like Nordstrom (NYSE: JWN) are prospering. Nordstrom reported a revenue growth rate of 9.11% on July 31, 2015, its business is booming while Macy’s is treading water and Sears is sinking like a rock. Also doing well is bottom feeding discounter Dollar General (NYSE: DG) reported that its revenue was growing at a rate of 7.87% on July 31, 2015.

It is also easy to see why both Nordstrom and Dollar General are doing well. The middle class seems to be shrinking before our eyes as the working class sinks into poverty.

The average college graduate actually makes around $2 less than he or she did in 2009 according to the Institute’s data. Combine that with high amounts of student loan debt and you can see the squeeze that the next generation of the Great American Middle Class faces. They simply lack the resources to maintain the kind of lifestyle that their parents and grandparents took for granted.


These retail sales growth rates indicate that America could have a very bleak economic future because there is no way that prosperity and economy growth can be maintained without healthy levels of consumer spending. It looks as if economists such as Paul Krugman and Joseph Stiglitz are right. Income inequality is killing the American Dream, we need to do something about if we don’t want to end up living in a third world nation.

If this situation continues, political upheaval is all but certain. The only winners here will be radical politicians such as Bernie Sanders. There is no economic recovery; only continuing wage stagnation and income inequality, our leaders need to take notice of this and do something if they want to keep their jobs.