a US holiday shopping post-mortem

Information is trickling in about how the holiday shopping season in the US went.  What jumps out at me (not necessarily exactly what was said) so far is:

–overall retail sales were up by 3.8% year-on-year.  To my mind that’s great, not the disappointment (vs. expectations of +3.9%) it’s being pitched as.  The reason:  the comparison is between the shortest possible holiday season, in 2013, and the longest possible in 2012.

–extended store hours didn’t appear to do much for sales.  It increased costs, though.

–the weak got weaker (think:  Best Buy, Sears, JC Penney).  Sears and Penney are both closing stores.

–Macy’s is laying off 2,500 in-store workers and hiring an equal number to work on its on-line offering

–mall traffic (not sales necessarily, but the number of visits by potential customers) is down by 50% from three years ago

–on-line sales were up by 9.3% yoy

my take

I’ve begun to believe that generational change–a passing of the baton from the Baby Boom to Millennials–will be an important stock market theme in the US for years to come.  I think the just-passed holiday season is evidence in favor of this idea.  (By the way, I heard the other day–but haven’t checked the source–that the single most important attribute to current car buyers is the technology in the car, not styling or engine power.  If I heard correctly, another piece of evidence.)

I’ve always thought that the greatest risk to equity portfolio managers performance  is that as they become more successful and wealthier, they gradually lose touch with the way normal people live their lives.  As that happens, they become less able to see the economic currents that ultimately influence stock prices.  Celebrity hedge fund managers are particularly vulnerable, in my view–but that may just be my prejudice.

Why is this important?    …because you and I will see this change going on long before the professionals do.  So we’ll be able to find the names and position our portfolios to benefit in advance of the wave of buying that will come as the light bulb comes on for gated-community pros.




the China-US trade route: getting goods into the stores for the holidays

planning for the holidays

It can take a surprisingly long time for a retailer to go from a hazy concept of what a store (or a chain) should look like for the holiday sailing season to seeing the shelves actually stocked with merchandise.

Let’s skip over the planning time it takes to figure out exactly what items, and in what quantities, the retailer wants to buy and start with what happens once he calls up a manufacturer or wholesaler and places an order.

Let’s also, for the moment, not focus on computer and consumer electronics items.  There, the issues are making sure enough components and manufacturing capacity are available.  That’s what takes months (a complex semiconductor, for example, may take three months to fabricate).  Actually assembling and testing a device takes a day or two; day three gets it to the plane; on day five, the Fedex truck is rolling to deliver the item.  So  …a week, more or less from manufacturing order to warehouse.

timing order flow from China

For, say, garments from China the story is completely different.  Assuming manufacturing capacity is available, it may take a week to manufacture/assemble a large order and get it to a port.  Pencil in another day for loading, two weeks for a container ship to reach Long Beach, California.  Add a day or two (or three…) for unloading there, and the better part of a week for the train the shipment is placed on next to reach the East Coast  Then there’s a trip to a company warehouse, where the goods are parceled out into smaller lots for delivery to the back rooms of retail stores.

That all adds up to about two months for an isolated rush order that sails through the system without any problems.

But problem-free order flow won’t always (ever?) be the case.  Rush orders cost extra.  And you can’t have all the merchandise arriving at the retail stores on the same day–no one has enough trucks or doorways that are wide enough.  So three months is probably a better figure.

using the data

What does this mean if we want to monitor port activity as a way of assessing retail plans for the holiday season?

Figuring merchandise should be in the stores in early November, look for a pickup in port activity in the area around Hong Kong in late July or early August, and an uptick in the ports around Los Angeles–LA and Long Beach–in late August or early September.

…so far?

So far there’s no pickup to be seen.  Hong Kong-area ports are flattish, and the southern California ports were down 5% year on year in August.  Li & Fung, the well-known Hong Kong-based logistics company, indicates in its latest monthly Chinese Purchasing Managers Index report that new orders in China are perking up a bit in September.  But these seem to be for domestic consumption, not exports–and stuff being made right now can’t get to foreign markets before yearend anyway.

investment implications

Hong Kong figures are doubtless depressed by the current situation of the EU.  Also, to the degree that they can (not much), importers have been avoiding Long Beach for years because of the port’s stunning inefficiency.  Therefore, there may be some room for a contrary bet that the upcoming holiday season will be better than dreary port figures suggest.  WMT, M or KSS might be ways to participate.

I have no desire to do so, right now at least.

The pluses would be that the stocks are trading at low PEs, and that expectations are low.  But I don’t know that well the mid-to-lower-end merchandisers who would be beneficiaries of a surprising Christmas spending surge.  So I’m certain to be the dumb money in this trade.

For another thing, I think we’re in for a luxury goods and gadget-driven holiday–jewelry, smartphones, tablets, e-readers and stuff like that.  So, as an investor I’m more comfortable betting on a continuation of the current haves vs. have-nots trend than on its reversal.

But I will be keeping an eye on the ports over the next few weeks for new data that might change my mind.