Generally retail purchasing agents and departments are fully ordered by this time every year as they ramp up for Christmas Season. In fact the merchandise is also getting well on its way to the warehouses and by mid October the stores are taking in the inventory and getting everything in place. This year we see some different trends, sure we see the stores loaded up for Halloween, but we see delayed shipments, lack luster purchasing and higher transportation and distribution costs.
Retailers reported a not so hot recent quarter and many are predicting third quarter to not be anything close to spectacular. Costs of transportation of course are up sharply due to fuel supply driving price. Some of this is due to Hurricane disruptions in production and refining, while other issues include a long-term trend in pump prices and oil barrel price.
Many retailers are already planning sharp cuts after Christmas for instance; Federated Department Stores is cutting 6,200 jobs after Christmas in 2006. Other large box store retailers see the writing on the wall and are taking a look and see attitude, but also planning for drastic measures. With credit card debt mounting with consumers, retail has slowed, also consider the increased gasoline pump prices to fill up that new SUV, pick-up or Mini Van taking its toll on America’s discretionary and spendable income. The costs in transportation to ship the products to the stores is also up sharply and those costs are passed on to consumers and higher prices mean more reluctant buyers.
Previously home equity growth helped consumers pay off credit card debt freeing up available balances for consumer spending, yet with housing slowing, housing values will not allow a second or third round of such, coupled with the raising of interest rates slowing housing markets. Thus effecting construction, building materials and that means job losses. Couple this with high fuel prices like in 1975 and the fact that the Federal Government will have to stop acting like spend thrifts and we have ourselves a Retail Sector Rotation and a downturn in our business cycle. The writing is on the wall, is anyone looking at anything other than flickering shadows on the cave’s interior. Think on this.
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