With the current economic conditions and no real hope for a rebound in the near future, most people are saving every dime that they have to spare and this philosophy is taking its toll on the retail industry and the exchange traded funds (ETFs) that track it.
Conditions are so troublesome, that Tech Ticker reports that roughly 220,000 retail stores may close their doors this year. Some retailers that are in trouble include Nordstrom (JWN), Neiman Marcus, Tiffany (TIF), Zales (ZLC), Saks (SKS), JC Penney (JCP) and Sears (SHLD). The luxury retailers are the ones that are really treading in deep water.
These retailers are in trouble for the following reasons:
- Both revenues and profits have been hit hard. January was the first month in the last seven that the industry saw positive sales growth.rates continue to rise.
- Unemployment. If people don’t have jobs, they don’t have the disposable income that is necessary to purchase goods.
- Consumer confidence is at all-time lows. People are saving, stashing extra cash under their mattresses and not splurging on that extra handbag or designer tie. Even if they have jobs, they’re nervous.
- Granted, access to credit has loosened up a bit, but it is still tough to get credit.
JC Penney came out with their fourth-quarter earnings report today: a 51% drop in profit that beat analysts’ expectations. The chain forecast a deeper loss for the current quarter than analysts predicted, though, reports Anne D’Innocenzio for the Associated Press.
Meanwhile, Lowe’s fourth-quarter profit has dropped 60%, and their forecasts for 2009 are below analysts’ estimates, says Ashley M. Heher for the Associated Press.
All we can hope for is a quick and drastic change in the global economy. If these stores do close a good chunk of their doors, the following ETFs could likely be affected:
- Claymore/Robb Report Global Luxury (ROB): down 9.7% over the last month; Nordstrom is 2.5% and Tiffany is 2.3%
- SPDR S&P Retail (XRT): down 5.4% over the last month; Sears is 2.1% and Nordstrom is 2%
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.