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User Info	The Problem With Retail Stocks; entered at 2007-12-02 10:49:48
Gotshares Posts: 1793 Registered: 2007-09-06	The Problem With Retail Stocks THE HOLIDAY SHOPPING season has kicked in with what seems a strong start: Black Friday sales up 8.3%, foot traffic up 4.8% and online sales up an impressive 22%, according to various sources. My weekend drive through upstate New York past several malls revealed jammed parking lots and police handling crowd control. If things are really that merry at the malls, you wouldn't know it from Monday's renewed plunge in stocks, including many already-battered retail stocks. So what's wrong with this picture? Plenty, according to my niece Laura Holden, an elementary school teacher in Columbus, Ohio, and the family member I turn to for fashion tips. Laura, as well as her two sisters, contributed to the increase in traffic by spending Friday at a mall. But they spent practically nothing, instead picking out favorite items and offering hints to their mother. Laura reports that high gas and food prices have indeed crimped her personal spending. Items she might have bought for herself a year ago are now on her Christmas wish list, and she's eating at restaurants less often. She and her friends have scrapped their annual gift exchange and are going out for drinks instead. I wouldn't count on more affluent shoppers to come to the rescue. True, shares of Nordstrom (JWN: 33.54, -0.18, -0.53%), which sets the standard for upscale department stores, jumped 12% last week after reporting much-better-than-expected earnings for the quarter ended Nov. 3. But that's when the Dow Jones Industrial Average was just off its all-time high — not at this week's 12750. The "wealth effect," already battered by slumping home prices, is taking a further hit from falling stocks. I certainly don't feel nearly as affluent as I did a month ago. Investors seemed to ignore the fact that Nordstrom also lowered sales estimates for the next quarter as well as its full-year earnings forecast. And in the retail stratosphere, shares of Tiffany (TIF: 46.43, -2.32, -4.75%) and Sotheby's (BID: 37.45, +0.53, +1.43%) — establishments that cater to the hedge fund crowd — have been battered. Sotheby's shares trade for nearly half of their 52-week high and have never recovered from the failure of this fall's big Impressionist sale, even though modern and contemporary works fared better. (Still, some of the biggest buyers were dealers, usually an ominous sign.) Tiffany's sales have been buoyed by dollar-rich foreigners, but shares are still nearly 20% off the high hit in mid-October. On Wall Street, where Tiffany just opened a new store, layoffs are mounting and expectations for bonuses seem to be shrinking by the day. It's tempting to view some of these retail share prices as bargains, especially since the major averages have all dropped 10% or more from their peaks, and the Nasdaq has hit my buying threshold. The American consumer has been down for the count so many times in recent years. Yet they (we) have always bounced back, finding a way to buy those flat-screen TVs, laptop computers and new cars, especially when ever-deeper discounts were offered. Why does this time feel different? The triple threat of higher fuel prices, falling real-estate values and (as my niece reminded me) steeper food prices has got to take a toll on discretionary spending. Readily available credit is no longer the option it once was. The home equity spigot has all but been turned off. Not to be an alarmist, but credit-card debt could easily go the way of subprime mortgages. Credit-card defaults are already on the rise — one reason venerable American Express (AXP: 58.98, +2.09, +3.67%) is trading at a 52-week low. And American Express caters to the affluent. In recent years credit-card loans were extended to unqualified borrowers at a profligate rate. At some point retail stocks will be attractive. But the time to buy is when everyone has thrown in the towel, not when they still rally when results barely beat low expectations. The plight of the American consumer, like that of the American homeowner, is going to take some time to play out. My hunch is that it will be the after-Christmas sales that really offer some bargains. http://www.smartmoney.com/commonsense/in....