Sometimes it's no fun to be right. At the beginning of October, looking back at September sales, I opined that all was not as the headlines seemed. Wal-Mart (NYSE: WMT), Costco (NYSE: COST), and other discounters did better than expected, while higher-end retailers and apparel sellers did poorly.
"Gonna be a great holiday season!" the optimistic biz press raved. "Consumers have plenty of firepower left!" I wondered if the analysts and headline writers had been eating too many of those gel packs that come in the pockets of new clothes.
Think about it.
When high-end retailers suffer while discounters thrive, I said, you're looking at evidence that consumers are feeling pinched, and that says bad things about the future. And so it looks today.
Target (NYSE: TGT), which is, I believe, another counter-cyclical consumer magnet, posted unexpectedly decent same-store sales. Ditto Costco. Wal-Mart was flattish, although Sam's Club strode ahead, and once again, the granular results at Wal-Mart (grocery up, general goods and apparel down) confirmed my thesis that consumers are buying only the basics and doing it as cheaply as possible. For further confirmation, just look at the rest of retail. Everyone was pretty much pummeled.
Scary sales
Pick an apparel seller. Pricey Abercrombie & Fitch (NYSE: ANF) squeaked by with a 2% drop, while -- again, true to my thesis -- lower-end knockoff Aeropostale posted a small gain of 3%. Thrashy teentailer Zumiez (Nasdaq: ZUMZ) finally fell victim to the trend, posting so-so comps and disappointing guidance, and it's getting hammered by nearly 30%. Gap (NYSE: GPS) pulled its usual rotten performance, an 8% drop, and the stock, true to form, was bid up by the legions of deluded investors who seem to think, three years into the non-turnaround, that things are turning around.
Chico
's FAS (NYSE: CHS) stunk up the joint with a 10.6% drop, and management predicted the upcoming months would be "more promotional" than anticipated. That means price cuts, y'all, and those are hard on margins. What I think this means, dear Fools, is that those low consumer confidence numbers are in line with consumer spending.
Foolish final thought
As the housing ATM has shut down and the bad news reverberates to Main Street, consumers are tightening their wallets. Gasoline prices have been mercifully slow-moving, as well, but they can't shrug off record oil prices forever. And as the dollar drops, the commodities from which our "stuff" is made get more and more expensive.
This all adds up to considerable uncertainty. This Fool is buying only one kind of retailer: best of breed, but best of breed whose stock has been spanked along with the ne'er-do-wells. Buy the good stuff cheap, and leave the rest alone.
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