In Retail, Home Goods Are Triumphant

 | Aug 21, 2013 | 1:27 PM EDT
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The news flow out of retail is ridiculous. On Tuesday we heard terrific things about the consumer from TJX (TJX), Urban Outfitters (URBN), Best Buy (BBY) and Home Depot (HD). You left here last night thinking that things were pretty darned fabulous, and that the problems we heard about from Macy's (M), Nordstrom (JWN), Saks (SKS) and Wal-Mart (WMT) are all about what's going wrong in the department-store business, particularly as it pertains to apparel. We had a weird spring, weather-wise, and there's no doubt about it: With the sequester, higher taxes and higher gasoline prices, things just weren't all that conducive to buying clothes.

But it seems to be limited to clothes. This morning Lowe's (LOW) reported a totally bang-up quarter, showing strength in pretty much everything that goes into a home. It was truly impressive -- so good that you have to say Lowe's is hitting almost on every cylinder. In fact, when you consider where Lowe's had been coming from, this is a remarkable turn. While the stock is up 29% this year, you could see it going higher.

So Lowe's' execution was remarkable. The company has achieved a gigantic amount of comparable-store growth that is closing in on Home Depot's numbers for the first time I can recall in years. Still, though, Lowe's would be the first to admit that the company is operating with a huge tailwind, the housing recovery. Appliances, outdoor goods, kitchen cabinets and fancy plumbing sales were so strong as to make you to think happy days are here again for certain.

As for Best Buy, it may not have crushed the numbers. But it's pretty darned clear that it, too, operated with a housing tailwind as people start spending more on their televisions and stereos, and yes, on home-movie studios, when their homes increase in value -- and that's what happened. TJX, for its part, singled out terrific sales at its HomeGoods division. Urban Outfitters talked about strong sales for Anthropologie, which is a store that sells premium home goods for the wealthy.

Yes, Wal-Mart, Target (TGT) and Macy's have exposure to products that go into your homes. But when you buy an existing home and you want to remodel, or when a contractor decides to build a new home, you don't go to Wal-Mart, Target or Macy's. You go to Lowe's and Home Depot.

I am sure that Macy's, after this quarter, wishes it had had more home-related products and less apparel. I wonder whether Target and Wal-Mart, which have moved aggressively into food and always have a presence in apparel, now wish they've had the product array that Lowe's and Home Depot possess. We know Saks and Nordstrom sure don't. They are clothiers, pure and simple.

Perhaps the best way to look at all of this is to say that the consumer has got choices. She is either going to spend on her home or on herself. She hasn't been spending on her home much, as Home Depot has told us endlessly, until the last few quarters. It's really accelerated now, as had happened at Lowe's. We can say that the consumer's tapped out by the higher taxes, the sequester and higher gasoline taxes, and that they are certainly worried about the new healthcare world that's coming. All of that is true.

But what I think is happening, after I've listened to all of these conference calls, is that the consumer has held back on home-spending. After all, what the heck is the point of sprucing up your home if it is losing value? Now that home prices have been roaring back, it pays to fix up your house. It's just a better investment than it had previously been. But there's not enough disposable income to both redo your house and also re-deck your outfit. The trade-offs favor the house and not the body, plain and simple.

At the same time, I think that there's something else at work, too. Maybe, at this particular moment, the online offerings of all sorts of merchants are taking share from traditional players, or are forcing prices to come down, because you can now compare so easily. Maybe shoppers are not only cutting back on apparel, but are also getting real smart about it.

No matter what, if you only conclude that the consumer is done, shot, never to be heard from again, I think that's a totally wrong takeaway. But if you conclude that there's a zero-sum game going on between the closet and the rest of the home, and that the latter is winning, I think you've analyzed the retailing news correctly -- as a stark and different period from any time since housing's peak six years ago.

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