September 30, 2008
A Bad Day for Retail Company Stocks
Last week the Retailer Industry Leaders Association (RILA) called on Congress to act and come up with a financial rescue bill for the nation’s banking system.
At the time, Sandy Kennedy, president of the RILA, said, “For our member companies and for our customers the implications of continued instability in the financial and lending markets are dramatic. Sagging consumer confidence and borrowers unable to access credit foreshadow devastating declines for retailers small and large. Therefore, on behalf of retailers nationwide, their employees and the millions of customers they serve, RILA urges Congress and the White House to act in a bipartisan manner to expeditiously solidify the financial markets and return stability to our economy.”
Over the weekend, leaders of the Republican and Democratic parties indicated they had reached a compromise on a revised version of the Emergency Economic Stabilization Act proposed by the Bush Administration and the Secretary of the Treasury Henry Paulson.
On Sunday, Secretary Paulson praised members of the House who he said “were focused on the right things – creating an effective program that can be implemented quickly and effectively, and doing everything possible to protect the taxpayers.”
He said passage of the bill would send a “signal to investors large and small, here and abroad, that we are committed to taking the necessary actions to protect our financial system and our economy.”
Yesterday, by a vote of 228 to 205, the House rejected pleas from the White House, business leaders and others to pass the bill. The result was the largest single-day point decline in the history of the Dow Jones Industrial Index, 778 points. In total, the stock market lost $1.1 trillion in value for the day.
As might be expected, retailer stocks took a big hit along with the rest of the market.
Discussion Questions: How will the defeat of the Emergency Economic Stabilization Act affect retailers? What can the retail industry do to get Congress to address the financial crisis facing it and the nation?
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Well, it was a bad day for stocks in nearly every industry. No reason for retail to be counted out in this instance. Like most sectors, the quality retail stocks will likely bounce back when the financial crisis and the economy take a more stable turn, which hopefully will be in the near future.
There are a lot of strong emotions being played out right now. Fear and panic are two that immediately come to mind, based on the reaction of the stock market to yesterday’s vote in the house. Anger is another very strong emotion that is causing so many people to contact their congressman and voice their outrage over the bailout bill. This puts the politicians in fear of being voted out of office if they vote for this bill. Many people are so angry because they have played by the rules and greatly resent the thought of seeing others who have gamed the system getting free support. This anger is so strong that it is clouding their ability to support a bailout that in reality should help them as much or more than the people they are mad about.
It’s so frustrating to see the politicians pointing fingers and playing the blame game when as nearly as I can see there is more than enough blame to go around. Let’s get this mess under control and then we can assess blame to our heart’s content.
The failure of the “bailout” is debatable as to the merits if it is needed or not. But what it does do is to create a vacuum that leaves consumers wary of “what’s next.” As the holidays approach, businesses looking for credit for purchasing inventory are going to face hurdles not seen in the past and at the same time, trying to guess what levels of inventory are prudent.
My guess is that consumers are going to hunker down as best as possible and will focus on their basic needs.
I, too, have spent hours in airports recently, watching “regular people” watching in horror as irresponsible fiscal policies came home to roost. Sandy Kennedy and RILA were correct to call for passage of the Wall Street investment bill…now let’s see who the retail trade associations endorse for president. We surely don’t need another four years of this.
The Retail Industry Leaders Association (RILA) just released the following statement from Sandy Kennedy.
“Without decisive action, the current instability in the financial markets will begin to sweep up not only those whose actions contributed to the crisis, but upstanding American workers, homeowners and businesses as well. The instability in the financial and lending markets drastically limits business and consumer access to credit and significantly diminishes the long-term market predictability investors and businesses rely upon.
“The swift and dramatic market reaction to yesterday’s failure to pass legislation is only a small preview to the long-term implications if Congress and the Administration do not come together to decisively address this crisis. Therefore, for the financial well being of our nation, we implore Members of Congress and the Administration to get back to the drawing board to avert further damage to the markets, the economy and the upstanding individuals and businesses at risk of further harm.”
Today we are discussing how to deal with economic misfortunes; what retailers can do now; and, of course, who’s to blame.
Re: misfortunes, the failed EES Act was not a cure for our growing financial problems but one of those ever-increasing “temporary necessities” to be endured and then somehow cured.
To wit: Economic misfortunes that one can endure come from the outside, but to suffer from one’s contributing faults, that is the sting in life. And that sting raises the question of Who’s To Blame? Perhaps Pogi has already told us.
As for retailers, they should continue doing what they do best: keep focused on selling merchandise. Money and bank credit will be tight, of course, making operations and gaining sales even tougher, but Congress will pass a “relief” bill soon and before the elections. Then after the elections, our DC leaders and we ourselves must finally deal with the issue of a country living beyond its means…and who is ready to do that?
The bailout won’t help because it’s not aimed at retail. And I’m not sure it’s needed for retail. The economy entered this mess because business models have been shattered for almost every vertical over the past two years, retail included. It also entered this mess on the rickety legs of betting on how a company will grow in the future rather than how it will perform on a realistic level. Retailing is an honest business. Buy, sell, serve, make money. Repeat process. It never benefited from tricky schemes. It won’t need them now.
Retailers were just part of the landslide. This has been building up for years. However, I believe greed will pull most of the true survivors through this crisis. I wouldn’t bet on any companies who rely on holiday sales for their entire bottom line unless they are very well financed and have an ultra strong balance sheet. We are in for a bit of a rough ride here. As we now live in a global economy, look for most other nations to suffer with us.
The credit crisis will have the same impact on the retail sector it has on most others: marginal performers relying on cheap or easily obtained credit to overcome poor operating performance are going to fail.
This is not mere speculation. Do the math. If a retailer cannot fund ongoing operations from operating cash flow, it is necessary to borrow money to do it. That money has been VERY easy to come by over the past five years or so. It’s allowed a number of players to stay in business who otherwise would have been liquidated or swallowed by a healthier competitor.
Failure to pass the funding bill will result in a continuation of the interruption of business lending which began several weeks ago and has intensified. Banks do not have the funds to lend. Period. The economics are complex, but put succinctly, extant of the billions being pumped into the system by the Fed (inflation anyone?), there would be NO money moving around.
Retailers with a history of troubled operating performance who rely on the public sector for funding are going to be in very bad shape. Unless something significant breaks very soon, look for a series of high profile bankruptcy filings almost immediately after the Christmas selling season. For now, most retailers own the inventory they will depend upon for Holiday revenue…revenue which turns into cash. Once the Holiday surge (what there will be of it) is over, the markdowns begin, and the rest will be inevitable.
Forget “rescue legislation” of whatever stripe–regardless of the so-called “restrictions” and “curbs.” We do not need to give Henry Paulson or any other Treasury Secretary a $700B line of credit.
Do something really meaningful and substantive instead. Repeal the “mark to market” provision of Sarbanes-Oxley and return to our traditional accounting standards or, better yet, a three year rolling average mark, and watch this “credit crisis” disappear.
That will not fix all of the economy’s underlying problems. We still have real debt issues to deal with. We still have a more global economic landscape that we have to learn to be successful in. We still have stagflation (potentially) to deal with. But at least we can get one of the big rocks (that we put in our own way) cleared out.
Congress proved once again why it has an even lower approval rating than one of the least popular presidents in U.S. history. Retailers need to get on the phones and send emails to the 90 Democrats and 133 Republicans who voted to try and save their jobs in an election year rather than do what was best for the nation.
Looks like the vote was fairly close so something will get passed before the elections. Retailers who rely on debt to stay afloat will probably face a crisis. Debt free retailers will probably do fine. Everyone seems to panic when they see stock prices go down. Sure is nice to be working for a privately held company during these times where stock price is not affected. Overall, retailers don’t need to do anything. With elections coming up, something will get done soon.
It’s clear that yesterday’s embarrassment will lead to passage of a rescue bill in a different form within a few days. With luck, the members of Congress will get more calls from angry constituents looking at their 401k balances than they got from opponents of the bill. So, short-term, the stock market should see a “relief rally” (which has already started today on the assumption that something is going to pass).
Long-term, it’s going to take a lot longer to recover to Dow 14K than it took to fall to current levels (less than a year). There is still a mountain of debt to be tackled, not only by the banking and financial industries, but more importantly by individual consumers. (And the credit crunch is affecting stores’ ability to buy inventory.) This should lead to a slower holiday season than I expected a few months ago, despite easy comps from 2007 — with some tough impact on earnings and share prices.
I’m not sure there is much retailers can do to impress upon the government to get this bill passed. There are the usual lobbying efforts that retailers employee but remember, this is a free market and artificially supporting the market is never good in the long term. For retailers themselves, this is a good opportunity to get new customers into the store.
Obviously, we are in an economic ‘crisis’ of sorts so it is up to the retailer to change their business to support this environment. Readjust pricing and merchandise mix to add value to the brand. Increase customer service levels to the extent that customers will want to return again and again. The onus is on us now. We have to get the customer wanting to shop again.
This is a huge and disappointing situation. The issue is that we are here now and we must deal with the problem versus pointing fingers. Retailers will be affected greatly because the average consumer is scared to death.
Recently, I went through a major airport. Huddled around the television sets were fast food workers, gate attendants, maintenance people, etc; the average “main street” workers who normally don’t watch the news are tuned in to what really affects them.
Congress did a poor job of communicating the reason and strategy for the bailout. Main Street is outraged. Leaders in retail need to get involved. Leaders in business need to get involved. It’s our future, our country and we must take action instead of sitting on the sidelines waiting for a move.
As already stated, yesterday was a tough day for everyone. I think retailers of all sizes need to tell their elected representatives to get a bill passed that America can get behind and get politics out of the equation.
We have to get some sort of bill passed or the credit crunch will have a huge negative impact on retailers and their suppliers. I believe the effect of this mess will linger with consumers and cause a difficult trickle down effect for the holiday. While all retailers will be challenged this holiday season, the impact will be felt the most by the small independent retailers on Main Street, Everytown, USA.
Tightening credit, falling sales, margin pressure will hurt these retailers even more than their national competitors. While many will be successful, even more will struggle. I personally know some very bright retailers who are struggling and grinding it out to stay afloat.
I hope the vendors and suppliers who work with these independent retailers step up their efforts this year to help the independents weather this economic storm. We need these independents just as much as the large chains.
Sure seems a bag of mixed messages; doesn’t it? Stocks fall, then up again during trading today about 200 pts. Sure not regaining the entire loss, but while listening yesterday one might have imagined another plummet today. Reports indicate the dollar that had been falling against the Euro was up in its largest gain against its inception. Reports also indicate consumer confidence is up for September, albeit still low, but go figure.
Sure, retail stocks fell yesterday. Find me a sector that didn’t. Is that possible on a day like yesterday? I don’t, however, think it’s anything indicitive about our industry any more than another. It was just the day. Unless anyone of them planned to cash out completely today, let’s take a look in three months for any real indicators.
Certainly we all wane in discomfort from the constant barrage from the media, the talking heads in DC, etc. I am left to wonder if any action is necessary. Can anyone really explain it? I am not quite sure anyone has done so without a slant of what’s needed to fix it. Yet, what’s wrong? Is it bad mortgages? Is it lack of regulation? Is it greed? Is it mismanagement?
I can agree that at least suspending the ‘mark to market’ from Sarbanes-Oxley would be a great start. But that would make sense, wouldn’t it?
I’m not quite sure that government rescue is quite the answer. From what I have seen in the past several days, there is no reason to trust them–period. Is it a rescue being proposed? Or, is it more of a CYA measure that will simply make things worse but provide those of scandalous actions a cover?
Judging from what is happening so far today, those that are driving a rescue in Congress deserve their 10% approval rating. Further, if we think so little of them, why would we want them to do anything at all? How could we possibly trust that their actions are the right thing? If they haven’t done anything in several years to earn trust and approval, why on Earth can we expect what they would do in an overnight rescue to be the right thing?
Maybe it’s time to just take a deep breath, step away from the edge of the building, not jump off, and think this through. Personally, I think we are better off if we do. In doing so, we might act closer towards the right thing instead of what might border on fueling the flames.
As of this post my last reading was 12:09 PM EDT, the Dow was up +268.86. Patience might be the virtue of the day.
If we accept that the “real” problem here was that real estate prices were inflated–and perhaps still are–then it follows that billions/trillions/god-only-knows-the-number of $ were expended on construction that people couldn’t afford; i.e. it was squandered…and that is indeed a real problem that remains, Recovery Act or not.
Bad day for retailers, bad day for the consumer, bad day for investors, and just an overall bad day.
Yes some kind of a bill will get passed but this is a scare that is not going to go away for a long time. Consumers, employees and companies are all going to be a lot more careful about when and how they spend their money for a long time.
Yes, the best will win but you will need to be the best to win and many will only survive and some will disappear.
Now we are going to learn who the real players are. The best retailers will survive and we will see the next great retailers emerge from these difficult times.
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Well, it was a bad day for stocks in nearly every industry. No reason for retail to be counted out in this instance. Like most sectors, the quality retail stocks will likely bounce back when the financial crisis and the economy take a more stable turn, which hopefully will be in the near future.
There are a lot of strong emotions being played out right now. Fear and panic are two that immediately come to mind, based on the reaction of the stock market to yesterday’s vote in the house. Anger is another very strong emotion that is causing so many people to contact their congressman and voice their outrage over the bailout bill. This puts the politicians in fear of being voted out of office if they vote for this bill. Many people are so angry because they have played by the rules and greatly resent the thought of seeing others who have gamed the system getting free support. This anger is so strong that it is clouding their ability to support a bailout that in reality should help them as much or more than the people they are mad about.
It’s so frustrating to see the politicians pointing fingers and playing the blame game when as nearly as I can see there is more than enough blame to go around. Let’s get this mess under control and then we can assess blame to our heart’s content.
The failure of the “bailout” is debatable as to the merits if it is needed or not. But what it does do is to create a vacuum that leaves consumers wary of “what’s next.” As the holidays approach, businesses looking for credit for purchasing inventory are going to face hurdles not seen in the past and at the same time, trying to guess what levels of inventory are prudent.
My guess is that consumers are going to hunker down as best as possible and will focus on their basic needs.
I, too, have spent hours in airports recently, watching “regular people” watching in horror as irresponsible fiscal policies came home to roost. Sandy Kennedy and RILA were correct to call for passage of the Wall Street investment bill…now let’s see who the retail trade associations endorse for president. We surely don’t need another four years of this.
The Retail Industry Leaders Association (RILA) just released the following statement from Sandy Kennedy.
“Without decisive action, the current instability in the financial markets will begin to sweep up not only those whose actions contributed to the crisis, but upstanding American workers, homeowners and businesses as well. The instability in the financial and lending markets drastically limits business and consumer access to credit and significantly diminishes the long-term market predictability investors and businesses rely upon.
“The swift and dramatic market reaction to yesterday’s failure to pass legislation is only a small preview to the long-term implications if Congress and the Administration do not come together to decisively address this crisis. Therefore, for the financial well being of our nation, we implore Members of Congress and the Administration to get back to the drawing board to avert further damage to the markets, the economy and the upstanding individuals and businesses at risk of further harm.”
Today we are discussing how to deal with economic misfortunes; what retailers can do now; and, of course, who’s to blame.
Re: misfortunes, the failed EES Act was not a cure for our growing financial problems but one of those ever-increasing “temporary necessities” to be endured and then somehow cured.
To wit: Economic misfortunes that one can endure come from the outside, but to suffer from one’s contributing faults, that is the sting in life. And that sting raises the question of Who’s To Blame? Perhaps Pogi has already told us.
As for retailers, they should continue doing what they do best: keep focused on selling merchandise. Money and bank credit will be tight, of course, making operations and gaining sales even tougher, but Congress will pass a “relief” bill soon and before the elections. Then after the elections, our DC leaders and we ourselves must finally deal with the issue of a country living beyond its means…and who is ready to do that?
The bailout won’t help because it’s not aimed at retail. And I’m not sure it’s needed for retail. The economy entered this mess because business models have been shattered for almost every vertical over the past two years, retail included. It also entered this mess on the rickety legs of betting on how a company will grow in the future rather than how it will perform on a realistic level. Retailing is an honest business. Buy, sell, serve, make money. Repeat process. It never benefited from tricky schemes. It won’t need them now.
Retailers were just part of the landslide. This has been building up for years. However, I believe greed will pull most of the true survivors through this crisis. I wouldn’t bet on any companies who rely on holiday sales for their entire bottom line unless they are very well financed and have an ultra strong balance sheet. We are in for a bit of a rough ride here. As we now live in a global economy, look for most other nations to suffer with us.
The credit crisis will have the same impact on the retail sector it has on most others: marginal performers relying on cheap or easily obtained credit to overcome poor operating performance are going to fail.
This is not mere speculation. Do the math. If a retailer cannot fund ongoing operations from operating cash flow, it is necessary to borrow money to do it. That money has been VERY easy to come by over the past five years or so. It’s allowed a number of players to stay in business who otherwise would have been liquidated or swallowed by a healthier competitor.
Failure to pass the funding bill will result in a continuation of the interruption of business lending which began several weeks ago and has intensified. Banks do not have the funds to lend. Period. The economics are complex, but put succinctly, extant of the billions being pumped into the system by the Fed (inflation anyone?), there would be NO money moving around.
Retailers with a history of troubled operating performance who rely on the public sector for funding are going to be in very bad shape. Unless something significant breaks very soon, look for a series of high profile bankruptcy filings almost immediately after the Christmas selling season. For now, most retailers own the inventory they will depend upon for Holiday revenue…revenue which turns into cash. Once the Holiday surge (what there will be of it) is over, the markdowns begin, and the rest will be inevitable.
Forget “rescue legislation” of whatever stripe–regardless of the so-called “restrictions” and “curbs.” We do not need to give Henry Paulson or any other Treasury Secretary a $700B line of credit.
Do something really meaningful and substantive instead. Repeal the “mark to market” provision of Sarbanes-Oxley and return to our traditional accounting standards or, better yet, a three year rolling average mark, and watch this “credit crisis” disappear.
That will not fix all of the economy’s underlying problems. We still have real debt issues to deal with. We still have a more global economic landscape that we have to learn to be successful in. We still have stagflation (potentially) to deal with. But at least we can get one of the big rocks (that we put in our own way) cleared out.
Congress proved once again why it has an even lower approval rating than one of the least popular presidents in U.S. history. Retailers need to get on the phones and send emails to the 90 Democrats and 133 Republicans who voted to try and save their jobs in an election year rather than do what was best for the nation.
Looks like the vote was fairly close so something will get passed before the elections. Retailers who rely on debt to stay afloat will probably face a crisis. Debt free retailers will probably do fine. Everyone seems to panic when they see stock prices go down. Sure is nice to be working for a privately held company during these times where stock price is not affected. Overall, retailers don’t need to do anything. With elections coming up, something will get done soon.
It’s clear that yesterday’s embarrassment will lead to passage of a rescue bill in a different form within a few days. With luck, the members of Congress will get more calls from angry constituents looking at their 401k balances than they got from opponents of the bill. So, short-term, the stock market should see a “relief rally” (which has already started today on the assumption that something is going to pass).
Long-term, it’s going to take a lot longer to recover to Dow 14K than it took to fall to current levels (less than a year). There is still a mountain of debt to be tackled, not only by the banking and financial industries, but more importantly by individual consumers. (And the credit crunch is affecting stores’ ability to buy inventory.) This should lead to a slower holiday season than I expected a few months ago, despite easy comps from 2007 — with some tough impact on earnings and share prices.
I’m not sure there is much retailers can do to impress upon the government to get this bill passed. There are the usual lobbying efforts that retailers employee but remember, this is a free market and artificially supporting the market is never good in the long term. For retailers themselves, this is a good opportunity to get new customers into the store.
Obviously, we are in an economic ‘crisis’ of sorts so it is up to the retailer to change their business to support this environment. Readjust pricing and merchandise mix to add value to the brand. Increase customer service levels to the extent that customers will want to return again and again. The onus is on us now. We have to get the customer wanting to shop again.
This is a huge and disappointing situation. The issue is that we are here now and we must deal with the problem versus pointing fingers. Retailers will be affected greatly because the average consumer is scared to death.
Recently, I went through a major airport. Huddled around the television sets were fast food workers, gate attendants, maintenance people, etc; the average “main street” workers who normally don’t watch the news are tuned in to what really affects them.
Congress did a poor job of communicating the reason and strategy for the bailout. Main Street is outraged. Leaders in retail need to get involved. Leaders in business need to get involved. It’s our future, our country and we must take action instead of sitting on the sidelines waiting for a move.
As already stated, yesterday was a tough day for everyone. I think retailers of all sizes need to tell their elected representatives to get a bill passed that America can get behind and get politics out of the equation.
We have to get some sort of bill passed or the credit crunch will have a huge negative impact on retailers and their suppliers. I believe the effect of this mess will linger with consumers and cause a difficult trickle down effect for the holiday. While all retailers will be challenged this holiday season, the impact will be felt the most by the small independent retailers on Main Street, Everytown, USA.
Tightening credit, falling sales, margin pressure will hurt these retailers even more than their national competitors. While many will be successful, even more will struggle. I personally know some very bright retailers who are struggling and grinding it out to stay afloat.
I hope the vendors and suppliers who work with these independent retailers step up their efforts this year to help the independents weather this economic storm. We need these independents just as much as the large chains.
Sure seems a bag of mixed messages; doesn’t it? Stocks fall, then up again during trading today about 200 pts. Sure not regaining the entire loss, but while listening yesterday one might have imagined another plummet today. Reports indicate the dollar that had been falling against the Euro was up in its largest gain against its inception. Reports also indicate consumer confidence is up for September, albeit still low, but go figure.
Sure, retail stocks fell yesterday. Find me a sector that didn’t. Is that possible on a day like yesterday? I don’t, however, think it’s anything indicitive about our industry any more than another. It was just the day. Unless anyone of them planned to cash out completely today, let’s take a look in three months for any real indicators.
Certainly we all wane in discomfort from the constant barrage from the media, the talking heads in DC, etc. I am left to wonder if any action is necessary. Can anyone really explain it? I am not quite sure anyone has done so without a slant of what’s needed to fix it. Yet, what’s wrong? Is it bad mortgages? Is it lack of regulation? Is it greed? Is it mismanagement?
I can agree that at least suspending the ‘mark to market’ from Sarbanes-Oxley would be a great start. But that would make sense, wouldn’t it?
I’m not quite sure that government rescue is quite the answer. From what I have seen in the past several days, there is no reason to trust them–period. Is it a rescue being proposed? Or, is it more of a CYA measure that will simply make things worse but provide those of scandalous actions a cover?
Judging from what is happening so far today, those that are driving a rescue in Congress deserve their 10% approval rating. Further, if we think so little of them, why would we want them to do anything at all? How could we possibly trust that their actions are the right thing? If they haven’t done anything in several years to earn trust and approval, why on Earth can we expect what they would do in an overnight rescue to be the right thing?
Maybe it’s time to just take a deep breath, step away from the edge of the building, not jump off, and think this through. Personally, I think we are better off if we do. In doing so, we might act closer towards the right thing instead of what might border on fueling the flames.
As of this post my last reading was 12:09 PM EDT, the Dow was up +268.86. Patience might be the virtue of the day.
If we accept that the “real” problem here was that real estate prices were inflated–and perhaps still are–then it follows that billions/trillions/god-only-knows-the-number of $ were expended on construction that people couldn’t afford; i.e. it was squandered…and that is indeed a real problem that remains, Recovery Act or not.
Bad day for retailers, bad day for the consumer, bad day for investors, and just an overall bad day.
Yes some kind of a bill will get passed but this is a scare that is not going to go away for a long time. Consumers, employees and companies are all going to be a lot more careful about when and how they spend their money for a long time.
Yes, the best will win but you will need to be the best to win and many will only survive and some will disappear.
Now we are going to learn who the real players are. The best retailers will survive and we will see the next great retailers emerge from these difficult times.