Some recent weakness in consumer confidence and retail sales data has some market observers concerned about the strength of the retail sector in the fast-approaching holiday shopping season. By most accounts, however, if there is a weakness, it will be confined to ailing brick-and-mortar retailers, providing a potentially compelling opportunity with the ProShares Decline of the Retail Store ETF (NYSEArca: EMTY).

It could be an early sign that consumers might be less inclined to open their wallets this holiday season. According to the Commerce Department, U.S. retail sales fell for the first time in seven months during the month of September, which could put retail exchange-traded funds (ETFs) on watch.

Retail sales fell 0.3% last month as consumers scaled back their spending on items, such as automobiles, building materials, and online purchases. Economists polled by Reuters were expecting an increase of 0.3% in September.

The Decline of the Retail Store ETF provides daily short exposure or -1x to the new Solactive-ProShares Bricks and Mortar Retail Store Index, which is comprised of traditional retailers and equally weights components. The fund holds companies including department stores, supermarkets and sellers of apparel, consumer electronics and home improvement items, such as retailers like Barnes & Noble, The Gap, Macy’s, Kroger and Best Buy, among others.

“Low unemployment and rising wages have meant a healthy consumer backdrop, but e-commerce and shifting consumer behavior means that brick-and-mortar stores haven’t necessarily been the beneficiaries of that tailwind,” reports Nicholas Jasinski for Barron’s. “The story has been further complicated by tariffs and a potentially peaking economy.”

Evaluating EMTY

Underscoring the strength in e-commerce, weakness in brick-and-mortar retail and EMTY’s ability to profit from those dynamics, the fund is up nearly 13% over the past year compared to a 10.44% loss for the  SPDR S&P Retail ETF (XRT).

XRT seeks to provide exposure the retail segment of the S&P TMI, which comprises the following sub-industries: Apparel Retail, Automotive Retail, Computer & Electronic Retail, Department Stores, Drug Retail, Food Retailers, General Merchandise Stores, Hypermarkets & Super Centers, Internet & Direct Marketing Retail, and Specialty Stores.

“It’s anyone’s guess when the cost impact of tariffs as a result of the U.S.-China trade war will go away, and the roster of datapoints signaling a slowing U.S. economy continues to grow,” according to Barron’s. “Should consumers meaningfully pull back on spending in 2020, already-challenged discretionary retailers will bare the brunt of the pain. And it goes without saying, e-commerce isn’t going anywhere.”

For more market trends, visit ETF Trends.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. 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.

Subscribe to our free daily newsletters!
Please enter your email address to subscribe to ETF Trends' newsletters featuring latest news and educational events.