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Retail Follow Up

Friday, July 13, 2007 | 07:22 AM

in Consumer Spending | Data Analysis | Economy | Inflation | Retail

I am meetings this morning, but I needed to get a quick follow up to yesterday's Retail data.

It was mixed, with a negative bias lurking beneath the headlines. A quick review of who reported better sales and who stunk up the joint very quickly reveals a pattern:

Wal-Mart (WMT), Costco (COST) and BJs (BJ) all reported better than expected retail sales for June. Disappointing retail sales were the soft goods, (i.e, clothing), and nearly all of the Department stores.

As we noted yesterday, Wal-Mart reported same store sales gains of 2.4% vs. its 1% to 2% forecast. They stated that home goods and apparel sales were weak but grocery sales surged.

There are two reasons for this. We discussed the FOOD INFLATION factor extensively yesterday. The second element is "retail slumming." Middle class families are now shopping downscale, looking to save some cash. Whole Food (WFMI) shoppers are going to Krogers, who's former clients are going to Target (TGT), whose former customers are now in BJs and CostCo's, whose former clients are going to Wal-Mart.

This is not a sign of strength.

See below for explicit details:

Bloomberg: “The number 1 problem is that traffic is down, that created a bigger problem for department stores, said Richard Hastings, a retail analyst at Smyth-Bernard Sands...”

CNBC: Howard Davidowitz (http://davidowitzassociates.com/), a retail consultant appeared, just before the NYSE close, and said retailers are in an “absolute collapse.”

Reuters: Rising energy, food costs test Fed core inflation focus “Swiftly rising food and energy costs are challenging the Federal Reserve's practice of focusing heavily on core prices in setting monetary policy, but the central bank shows little sign of changing its thinking... ‘It must be obvious to the citizenry of this country that there's... inflation,’ said Steve Axilrod, a former staff director for monetary and financial policy at the Fed [for Volcker]. ‘One ... definition of inflation is when the (average shopper) notices it in the grocery store.’”

More later . . .