You can't be hostage to the mall. This morning, Michael Kors (KORS) reported a number that looked pretty good on the surface -- but when you dug down, you could see a distinctly negative quarter and a totally suboptimal forecast. The culprit? Department store traffic.
It never seems to end, and it shows that even the highest-end, the best, is not immune to the lack of customers walking around doing some shopping. At one time, it was known as the great American pastime. But no more.
The call took my breath away. Once again, it showed very strong e-commerce numbers, something a company has to show in addition to foot traffic -- not to the exclusion of it, which is what Target (TGT) saw. And this secular shift in how people spend is just crushing a whole industry.
We saw the same thing yesterday, when Newell Brands (NWL) -- which sells a huge amount of product, including all of those Jarden appliances, Sharpies and Rubbermaid containers, in stores like Target -- signaled that the mall was quite a challenge. It's got to the point that even mentioning the mall on a conference call is the kiss of death. They are dying shrines to the old way of spending.
Even when retail looks good, it's bad. I thought The Gap's (GPS) same-store sales were improving, especially the global flagship, but the market would not hear it -- and the stock couldn't rally even when the surface numbers appeared to be fine.
We have to start wondering what could happen to Sears Holdings (SHLD) now that its stock is at $6. Real Money Contributor Brian Sozzi this morning laid out all of the suppliers who might be dinged, given what the action in SHLD foreshadows: Carter's (CRI) , Nike (NKE) , Land's End, Goodyear (GT) and Whirlpool (WHR) , are just a few. I know you may think that Sears and Kmart don't matter, but the company did have $23 billion in sales in the last twelve months and that's nothing to sneeze at.
Of course, the consequences of Sears' endless shrinkage has been to the benefit of JC Penney (JCP) , because they often share malls, and Home Depot (HD) , which highlighted (although not by name) Sears Holdings' share-donor status.
Suffice it to say, though, that if a retailer does go under, as we saw with Sports Authority, everybody gets hurt initially from any liquidation. But it is worth reminding ourselves that one bandaid on the secular decline injury would be closings, and another would be mergers. They just haven't happened yet.
But the fate of Kors and Hanes Brands (HBI) -- and even Action Alerts PLUS holding Newell Brands (NWL) , which I think can pull out of it because of its "necessity" story -- doesn't have to be the fate of all suppliers. You have to be more inventive -- as is the case with Hasbro (HAS) , which talks about being more experiential and more entertainment-oriented.
Hasbro has the advantage of being a gaming company that's linked to movie franchises, but it has been creative and in touch enough with its customers to know that they are looking for the "tie-in" to the doll, not just the doll, and that each feeds the other -- hence its desire to make movies itself.
Another company that is changing its fate is Clorox (CLX) , which has shifted aggressively to online advertising and online selling as a concession and recognition of the drop in traffic to the regular outlets.
Most of the suppliers, though, are just playing the victim. They haven't reinvented. They haven't even figured out e-commerce, because they never thought their brick and mortar merchandisers would let them down. Until they recognize the secular downshift, they are doomed to have more numbers like Kors did today, and that makes the sector just plain uninvestible.
