The consumer shift to online shopping continues as department store retailer J.C. Penney is expecting to shutter 18 department stores and nine home furniture shops in 2019.
The silver lining is that the latest closures are less than the 100 stores analysts were predicting would close as online retail giants like Amazon continue to snatch up market share. Nonetheless, J.C. Penney management are predicting more closures to come as the underlying trend to increased online retail continues.
“I think as we go forward — as we mentioned, we’re closing 18 [department stores]this year,” Treasurer Trent Kruse told analysts. “I think it’s safe to assume that as you roll into 2020 and future years, it’s likely to see some continuation of that effort. [It’s] hard to say now, but I think that’s a fair read.”
Per research firm Mordor Intelligence, the “internet retailing is the modern way of shopping. With growing penetration of smartphones and mobile devices and the internet services, e-commerce has emerged as a major shopping platform in the world.”
Related: 6 Identity Management Challenges Retailers Are Facing in 2019
A Strong Contributor to GDP
Earlier this month, economists lowered their fourth-quarter GDP outlook to 2 percent from 3 percent following the latest December retail sales data. On Thursday, the Commerce Department reported that GDP grew 2.6 percent during the fourth quarter.
Based on the CNBC/Moody’s Analytics Rapid Update, economists responding to a survey saw growth at a median 2.4 percent pace, which is down 0.7 percentage points. The Commerce Department reported that retail sales dropped to its lowest level in nine years, which evidenced a drop in economic activity near the end of 2018 as markets were getting roiled by volatility.
“The most plausible economic explanation is that long-dormant wealth effects came back with a vengeance, and consumers slashed their holiday purchases when they saw their 401(k)’s going down the drain,” JP Morgan economists wrote. “At any rate, retailers subsequently added an above-trend 21,000 jobs in January (and private employers overall added 296,000 jobs), so it’s hard to see how that lines up with the December retail sales being the leading edge of more widespread weakness.”
Delving deeper into the data, the Commerce Department reported retail sales fell 1.2 percent. In addition, November data was revised lower to show retail sales were up 0.1 percent as opposed to the previously reported 0.2 percent.
Economists polled by Reuters were forecasting retail sales to be up 0.2 percent in the month of December.
Earlier this year, the National Retail Federation (NRF) projected retail sales figures to grow from 3.8 to 4.4 percent, which is lower than the 4.6 percent growth experienced in 2018. Whether it hurts the ETFs will depend on how the market interprets the data, but the NRF says the forecast comes “despite threats from an ongoing trade war, the volatile stock market and the effects of the government shutdown.”
With the retail sector being a solid contributor to gross domestic product, investors can look to ETF plays featuring cyclical sectors versus defensive sectors.
For investors looking for continued upside in U.S. cyclical sectors over defensive sectors, the Direxion MSCI Cyclicals Over Defensives ETF (NYSEArca: RWCD) offers them the ability to benefit not only from cyclical sectors potentially performing well, but from their outperformance compared to defensive sectors.
Conversely, if investors believe that U.S. defensive sectors will outperform cyclical sectors, the Direxion MSCI Defensives Over Cyclicals ETF (NYSEArca: RWDC) provides a means to not only see defensive sectors perform well, but a way to capitalize on their outperformance compared to cyclical sectors.
For more information on the consumer sector, visit our consumer discretionary category.