Saturday, May 14, 2016

Stupidly Blaming Amazon

Mish brings some common sense to big retail analysts idea that somehow Amazon is to blame for the sales funk in USA retail.  But even Mish misses the core reason.  First read the article and see the graph.

Yes, Nordstrom is in a funk too, but it does not belong in that list with Kohl's, Macy's and Walmart.  Walmart is dying because malcredit, the oxygen of the dinosaurs of the last forty years, cannot be invested in anything dinosaur-grade that can make a payback.  It does not matter if we are in deflation and the banks will in effect pay you to borrow malcredit, the revenue stream from the investment with the borrowed malcredit will not cover the amount you borrowed.  Income drops but the debt remains on the books, in effect growing relative to all other assets as it cannot be reduced.

One reason Walmart grew so amazingly is its customers were not as foolish as Macy's cardholders.    This is how the real world works.  Macy's and Walmart goes to the exact same factories and buy the exact same jeans for essentially they same price, but with their own respective labels.   Walmart buys for $7, sells for $19 in a cash transaction.  Advantage Walmart shopper.

Macy's buys for $7, lists at $45, on sale for $29.  People whip out their Macy's cards and after paying 50% more (29 instead of 19) pay 20+% interest on top of the overprice.  Macy's benefits from a slight boost in sales as their competitors who played the same game died.  No there is no one else left to die, so Macy's is the last man standing.  No one from which to gain a boost in sales.

And by the way, I am a cast iron cooking gear freak, and I check out Goodwill for pots and pans fairly regularly.  I cannot imagine ever buying kitchenware from anywhere else...  Goodwill's supply is massive and very good quality dirt cheap.  Macy's managed to be the last man standing based on their amazing kitchenware departments in the 1980s and 1990s.  I was there. That's over.

Take any Macy's department.  For those who love people, open a retail store to compete directly with that Macy's department.  Buy fashion forward new and for the time being sell used whatever alongside.  The secondhand goods will compete with what is on Macy's shelves, and your testing out the new items will make you a destination shop.

There have always been upscale second hand stores.   You can merge new and used together.  Get month to month rent, refuse a lease.  In fact, cut a deal where the landlord gets only 6% of the top line as rent. so he makes money only if you do.  Refuse triple net lease as ludicrous, insulting.

And work closely with Goodwill or your local version.  You'd be surprised what they are up to.  With maybe 80% used, to start, and 20% really cool new new,  bury Macy's and have Nordstrom VPs visiting your store to figure out how you are taking their customers.

The dinosaurs are dying, because their system is over. Those into lifestyle over personal accumulation will very much enjoy the next 40 years.

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