Worse-than-expected drop in U.S. retail sales weighs on stocks — what to watch now

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What’s the read on retail?

U.S. retail sales dropped 16.4% in April as the coronavirus pandemic weighed heavily on consumer spending, the government said Friday. Economists were expecting closer to a 12% decline.

The figure put into focus the virus’ ongoing impact on U.S. economic data, market analysts said following the report.

Here’s what three of them, including CNBC’s Jim Cramer, are watching now:

Jan Kniffen, CEO of J Rogers Kniffen WWE, said the pandemic has simply accelerated trends that were already changing the face of retail:

“The point is it was really bad, we knew it would be bad, and we know what wasn’t selling. What wasn’t selling was all of those stores that were closed because the government said, ‘You have to be closed,’ and people didn’t want to really go to them anyway … and they didn’t really want to go to restaurants even if the restaurants had been open. What we’ve just seen, though, is the worst month. It’s going to be better in May because everything’s starting to reopen in some parts of the country. The numbers will get better. Most of those stores are opening at about 55% of what they would’ve done the same time last year. So, that’s a real number. And that tells you just how tough it is that you can’t get them back in the store yet. That number will gradually rise and will be at 70%, 65% before we get to holiday, and then, if we’re lucky, we’ll be in the 90% range by the time we get into the holiday selling season. So, … this number we just saw was terrible, but nobody thought it could be anything but terrible. However, we do know that pajama sales were up 150%. What does that tell you? … We’ve had a lot of retailers already file [for bankruptcy], and we’re going to have thousands and thousands of stores that only reopen long enough to go out of business. So, that was already happening. We knew there was going to be shakeout in this industry. This started way back when. Gee, [in] 2014 I was on your show saying we’re going to see 50% of non-bar, non-retail sales online by 2030. Now, it’s going to be by 2025. I was saying we’ll see 10,000 stores a year close for the next 10 years. Now, we’re going to see 50,000 stores close this year. It’s all just being accelerated by Covid. But there’s no surprising things going on here. The retailers that were struggling are continuing to struggle, and they’re just struggling harder now because cash flow went to zero for a lot of them. That’s never happened before in the history of retailing. If you were down 10% in a recession, it was a big deal. Now it’s gone to zero for some long period of time – six weeks, eight weeks, whatever – and even when you come back, your cash flow’s going to 50, 60% of what it normally was. You can’t make a living there, so, you continue to see people fail even once we start to put the stores back together. This is just an acceleration of the trend. We’re going to go online; We already knew that. We’re going to go digital; We already knew that. We’re going to go to cashless payments; We already knew that. It’s just going to come a lot faster since Covid is pushing that so hard with the consumer because now the consumer also doesn’t feel safe. They don’t just want convenience now, they want convenience and safety, and that’s harder to deliver and it’s expensive to deliver. So, the cost structure’s also going to get worse for all these retailers as they have to do all of these things to make the consumer feel more comfortable.”

Cramer, the host of “Mad Money,” said the government’s distinction between essential and nonessential businesses has unfairly weighed on some consumer-facing companies:

“What can I say? There is just a really horrible distinction between essential and nonessential. … We were talking with Planet Fitness last night. When they made liquor essential and gyms nonessential, it wiped out a lot of gyms. And so what’s going to happen is there’ll only [be] one strong gym. All these numbers just point to the same stocks doing well: CostcoHome Depot and Lowe’s, recommended this morning, obviously Amazon and, yes, WalmartTarget’s doing well. But everybody else is doing poorly. There was an amazing article today about how FedEx is cutting back hours of the ones that are most hurt. … There’s only going to be a couple places for us to go.”

Jeff Saut, chief investment strategist at Capital Wealth Planning, said this downturn may not end up being “that big a deal.”

“I do think there’s huge, pent-up demand out there. I mean, we haven’t been able to go out to restaurants for five or six weeks. … I said on CNBC and I’ve written in my letter the past two weeks that the market’s in for a rough spot right here. My models don’t tell me how low it’s going to go, but, again, I don’t think the lows that we made a couple months ago are going to be retested because I think you’re going to get a pretty strong pickup in earnings in the back half of this year and I think you’re going to get a pretty strong pickup in economic activity in the back half of this year. And there’s a ton of cash on the sidelines, and if you talk to the retail investors, they’re still scared to death. And that’s not the way market blow-off highs are made. So, I think we’re still in a secular bull market. Secular bull markets last 15 to 20 years. I think we’ve got five to 10 years left in this one, and very few people believe that.”

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