November 17, 2015

Retailers to be in trouble

I previously wrote about the negative outlook for the traditional retail business -- and Macy's specifically.

The transformation of the delivery of retail goods began glacially but has quickened its pace dramatically in the last 12 to 18 months.

Amazon initially began to transform the delivery system of retail products years ago, but many others have chimed in with strategies that emphasize quicker and less-expensive channels, particularly of an Internet kind.

The debris from this changing backdrop will be voluminous and scattered well beyond the traditional retail businesses. As an example, Whole Foods a market-leading distributor of high-quality, gourmet food products -- was disintermediated weeks ago. There will be many more industries disrupted.

Moreover, this transition has important negative ramifications not only for the retail industry but also for the real estate industry (read: malls and shopping centers); it provided the bricks and mortar that served as a delivery point for goods and a prime source of jobs. These and other sectors will be damaged going forward.

As I mentioned in my morning column, "Macy's Performance Is No Miracle on 34th Street," we are now over-boxed in this Brave New Retailing World, which coalesced in one big thump and dumping in retail stocks after Macy's punk results today.

But Macy's won't be the last victim.

There will be more damage in numerous industries.

As I cited in my Barron's piece four years ago titled "The Threat of Screwflation," technological obsolescence is one of the root causes of the weak jobs market over the last decade.

Stated simply, the quantity of physical and labor capital required to operate a business has changed forever in the world.

No wonder Facebook (FB) has nearly six times the market value of General Motors (GM) .

Position: Short FB (small)