Reconciling Retail Data

The Commerce Department reported retail sales numbers grew 1% in May, and revised April retails sales growth to 0.4%, up from the original estimate of 0.2%. This data is somewhat promising in light of the other troubles the consumer is facing - rising joblessness, falling home prices, and rising consumer prices including food and gas.

The retail sales report also demonstrated a 1.2% increase in sales among general merchandise stores, such as WalMart. Much of this spending increase could be related to the $300 checks received from the government stimulus package. Auto and home sales continued to show weakness in light of rising gas prices, and lends credence to the notion that much of the spending surge could be tied to the stimulus checks.

The promising retail data comes just one week after the Labor Department reported the largest one month increase in the unemployment rate to 5.5%, up from 5.0%.

There is some evidence that the offline world's performance can have some impact on the online world. TNR reports that online display advertising growth slowed to 8.5%, about half the pace of the previous year. Online advertising continues to grow faster than tv's, newspapers and other media. Similarly, non-store retailers - i.e. ecommerce and catalog companies - continue to maintain the strongest growth on a relative basis vs. other retail scenarios. eMarketer is forecasting that ecommerce sales will still top 14% in 2008.

Whether these online trends continue to be insulated from the offline trends will determine the overall economic outlook for 2008.

As the Consumer Goes, How Goes eCommerce?

The Federal Reserve released its Q1 GDP economic growth number today, indicating that the first of two quarters of negative growth necessary to trigger the technical definition of a recession did not open 2008. However, there is evidence that the consumer pullback that has been all but inevitable took another step. Consumer spending rose just 1%, the lowest level since the second quarter of 2001, and less than half the 2.3% that it rose in Q4 '07.

This morning (May 1st), the Commerce Department released lagging consumer spending numbers for the month of March. At first glance, the number is up 4%, but when you strip out inflation, that number falls to just 0.1%.

The litany of issues facing the American consumer continues to grow - rising fuel, food and other prices, falling home values, and increasing credit card rates - and those factors place pressure on the American consumer's ability to drive the economy forward.

This may not be as bad for ecommerce shopping if last year's experience is any guidance, but we're still waiting for new data from Comscore on Q1 online shopping.

Pretty Soon, It's Real Money

The Federal Reserve released Consumer Credit numbers yesterday indicating that Americans now hold $943.5 Billion in revolving credit facilities. The old adage goes, " a billion here, a billion there; pretty soon it's real money." My contention would be that when outstanding debt hits $1 TRILLION, we're talking about real money.

Consumer Pinch

There is ample evidence, as we've discussed before, that the retail market is tightening. It follows modest weakness in the jobs market, but most closely is related to the fact that the American public added more than $140 billion in debt over the last three years. Combine that with the fact that housing prices are no longer a tireless engine of wealth creation, but is starting to fall. In fact, home foreclosures are on the rise, and American consumers are beginning to walk away from their fledgling mortgages.

The way that the mortgage boom was fed, with at best tacit complicity among mortgage originators, collateralized debt obligation salespeople, real estate brokers and homebuilders that led to very low down payments if any at all being made on hundreds of thousands of new homes. Homeowners are beginning to just forfeit the very low levels of equity they were forced to put into the mortgages out of the gate. Those walkaways will cause a hit against the collective credit rating of the American consumer.

Tightening Credit

The massive debt levels that Americans have assumed is increasing the anxiety level among credit card issuers. In December, 7.6% of that $943 Billion was at least 60 days delinquent, or already in default, up from 6.4% year over year. There is evidence that credit card companies are both increasing their lending standards, and increasing the rates of cardholders, even those in good standing. Further, many of them have already taken charges to build up reserves against bad credit losses.

Even more frustrating for both the credit cards and retailers is the evidence that the consumer is cleaning up its act. While it is unlikely to have the means to collectively wean itself off debt in the near term, many are cutting discretionary spending. Wal Mart, which grew year over year sales only 0.5% vs. the 2% it expected to is frustrated by low gift card redemptions as most expenditures are moving more toward essentials and away from things like electronics.

Mpayy's Value Proposition

Mpayy is not going to drive more customers into stores, or even to the websites of online retailers. Mpayy's offer to internet retailers with an online presence is two-fold: i) Mpayy will be 40-50% cheaper than the other payment options; and ii) Mpayy takes all the fraud risk. It is an interesting market to be entering in, because the highest profile alternative payments company that has been having big wins in the retail space is Bill Me Later, which is in itself a revolving credit facility. For the reasons discussed above, it will be interesting to see what happens to them.

Margin-Starved Retailers to Need More

The Federal Reserve put out its "Beige Book" for the January 29-30 Fed meeting in which it pointed to slowing economic growth, though it showed no sign that a recession was already in effect. However, economists, the Bush Administration, and industry leaders/watchers perceive that recession has already taken hold. Those sentiments are the impetus for the $180 billion fiscal stimulus bill being proposed to give Americans an $800 tax rebate.

Boosting this scenario is a recent CBO report that argued, "So to boost the economy by about a percentage point for half a year, the stimulus would have to be about a percentage point of a half-year's gross domestic product, or about $70 billion," according to a a CBS Marketwatch report. Multiply that 2x to get to the $140 billion the Bush Administration is advocating in an attempt that is likely seeking 1% GDP boost, or at least to buttress the retail market. The same CBO report revealed that consumers spent 20-40% of their tax rebates on retail, which is where the growth comes from. The stimulus is likely to sail through (you heard it here first) because no one runs away from giving money to the electorate in an election year.

However, retail deserves a closer look...

While online retail growth was almost 20% over the holiday season as discussed here, overall retail growth was a disappointment over the same period. Retail sales did grow year over year, although it came in at 3% instead of 4%.

Wal Mart announced earlier this year that it would slow the rate of new store openings in spite of their better than expected growth. Some analysts argue that the company's success is a contrarian indicator as many consumers traded down to bargain basement Wal Mart.

The Wall Street Journal notes some recent hard times among

"Zale Corp. said it would close 60 stores in the next 90 days. Talbots plans to pare store openings and use more frequent markdowns to entice shoppers. Chico's FAS Inc., another clothing retailer, is cutting $100 million of capital spending, including scaling back a distribution center expansion and delaying a new computer project until 2009."

Retail has been surging the last several years possibly started by the tax cuts several years ago, but certainly driven forward by skyrocketing home prices, and falling interest rates. Home-owners were able to continually refinance their homes at lower rates, taking out equity in the process, which they tended to pour back into the retail economy. Home prices have stalled in many places and begun falling precipitously elsewhere in the country. It is questionable how much tax rebates will be able to pull consumers out of the hole, especially in light of the buying binge they've been on and the negative savings rate Americans have presently.

A Win for Mpayy

Mpayy, Inc., which launches in less than 48 hours will provide a solution to many of the problems facing the retail industry. As sales decline, this margin-starved industry will be groping for a few percentage points here and there. One place they can find that is by CUTTING TRANSACTION COSTS, through Mpayy, which will also get them out of the pretty pickle JC Penny currently finds itself in with the recent revelation of 650,000 lost identities.

Video Games Drive Online Holiday Spending Growth

While the economy is off at the beginning of 2008, the holiday shopping season does seem to have ended with some strength. Online sales growth accelerated from the 18% year over year trend discusses here to just under 20% for the season ending December 31, 2007. However the trend is down from so-called "Cyber Monday", which is the Monday after Thanksgiving on which retailers are said to begin offering some of their deepest discounts.



Overall online sales grew by $4.6 billion to $29.17 billion for the period between Thanksgiving and Christmas. These numbers are being born out by companies like Circuit City, which delivered 17% online and call center growth in December despite an 11% same store sales decline.

The strongest growth occurred in Video Game sales as American's appetites for home entertainment continues unabated, and the open console battles being fought by Microsoft, Nintendo and Sony continue to play out.



Sony reported that it sold 1.2 million Playstation III's since Black Friday yesterday, a number that has not yet been reported by Microsoft and Nintendo. However, the company also announced that Blu-Ray DVD's will be playable on its game console going forward, which is certainly likely to drive further adoption for the new machine.