Best of the Week
Most Popular
1.Stock Market Crash and Recession Indicator Warning: Extreme Danger Ahead - Harry_Dent
2. Is This How World War III Begins, In Almost Complete Silence? - Jeff_Berwick
3.Trump Wins 2nd Presidential Debate, Betfair Betting Markets Odds Bounce - Nadeem_Walayat
4.Why Krugman, Roubini, Rogoff And Buffett Dislike Gold - GoldCore
5.End of SPX Stock Market Correction Nears - Tony_Caldaro
6.Get Ready for the Future - Exponential Machine Intelligence Mega-trend towards Singularity - Nadeem_Walayat
7.US Housing Market Bubble II – It’s Happening Again! - Andy_Sutton
8.FTSE BrExit Stock Market Panic Crash Resolves towards New All Time Highs - Nadeem_Walayat
9.Can Trump Still Win Despite Opinion Polls, Bookmakers and Pundits all Saying Hillary has Won? - Nadeem_Walayat
10.Gold’s, Miners’ Stops Run - Zeal_LLC
Last 7 days
Establishment Mainstream Media Elite Buys US Election for Hillary Clinton, Time Running Out for Trump - 23rd Oct 16
Inflation About To Explode Higher - 22nd Oct 16
Still waiting for SPX uptrend to kick off - 22nd Oct 16
Will a Rising US Dollar Crush Gold’s Fledgling Bull? - 22nd Oct 16
Why The Global Economy Will Disintegrate Rapidly Back to Olduvai Gorge - 22nd Oct 16
GLD Bleeds Out; Weekly Gold Update - 22nd Oct 16
Stock Market Investment Success Through the “Investment Rule of 72” - 21st Oct 16
The Final Bottom in Gold - WHEN - 21st Oct 16
Gold Green Lights Upleg - 21st Oct 16
Demand for US Mints Silver Eagles has ‘Returned with a Vengeance’ - 21st Oct 16
Central Bankers Can't Stop The Death Blow Of The Post US Election Recession - 21st Oct 16
The Fortune at the Bottom of the Pyramid: Golden Opportunity for Frontier Asia - 21st Oct 16
Have You Taken These 4 Simple Steps to Improve Your Trading? - 21st Oct 16
The Stock Market is an Accident Waiting to Happen - 20th Oct 16
It's Rally Time for Gold and Silver Equities - 20th Oct 16
Cashless Society – Risks Posed By The War On Cash - 20th Oct 16
China's insane Housing Market Will Tumble and Crash in 2017 - 20th Oct 16
Donald Trump Bounces Going into 3rd and Final US Presidential Election Debate - 20th Oct 16
Attention Please: Phase Two of the Gold and Silver Train Now leaving the Station. All Aboard? - 19th Oct 16
How to Successfully Trade a Stock Market Crash - Black Monday October 19th 1987 - 19th Oct 16
Tesla, Apple and Uber Push Lithium Prices Even Higher - 18th Oct 16
Silver, Debt, and Deficits – From an Election Year Perspective - 18th Oct 16
UK Property Market: Slow Growth Does Not Equate To Decline - 18th Oct 16
Trump Election Victory is in Your Power - 18th Oct 16
Stock Market More to Come! - 18th Oct 16
This Past Week in Gold and Silver - 17th Oct 16
A Falling Stock Market Cannot Be Allowed - Financial Repression Is Now “In-Play”! - 17th Oct 16
Commodities, Forex and Stock Market Trend Forecasts - 17th Oct 16
Stock Market Crash..or No Crash? - 17th Oct 16
A perspective on risk rally – Risks abound but Stock Market is Confident - 17th Oct 16
Bank of England Blames Brexit for Sterling Drop Inflation, Masks QE Money Printing Cause - 17th Oct 16
From Piety to Pride to Pity, America's Racial Divide - 17th Oct 16
Is Obama Juicing US Government Spending To Get Hillary Clinton Elected? - 16th Oct 16
Seek Your Independence: Anything Else Will Destroy You - 16th Oct 16
SNL - US Presidential Debates, 1st, 2nd, VP - Like You've Never Seen them Before! - 16th Oct 16
End of Economic Growth Sparks Wide Discontent - 16th Oct 16
Donald Trump on Life Support, May Abandon Election Campaign and War on Republican Party - 15th Oct 16
The Gold Manipulators Not Only Will Be Punished, They Have Been Punished - 15th Oct 16
Black Votes Matter - Is the US on the Verge of Mass Race Riots? - 15th Oct 16
Gold Stocks Screaming Buy - 14th Oct 16
Brace Yourself for the Quadrillion-Dollar Reckoning - 14th Oct 16
The Next Recession Will Blow Out the Budget - 14th Oct 16
John Mauldin: My Infrastructure Plan to Save the US Economy - 14th Oct 16
World War III On The Brink: War Will Continue Until It Triggers Economic Collapse - 14th Oct 16
US T-Bill Rejection At Ports In Progress - 14th Oct 16
These 2 Debt Instruments Pose Peril to Millions of Investors - 14th Oct 16
China’s Rocketing Housing Market Real Estate Bubble - 14th Oct 16
DIY Winter Home Maintenance Money Saving 22 Point Checklist to Get Ready for Winter/Fall - 14th Oct 16
US Stock Market, Big Picture View - 13th Oct 16
Stock Buybacks Main Force Driving Bull Market; Rewards Investors and Starves Innovation - 13th Oct 16
SPX Gapping Down... - 13th Oct 16
Syria - Obama Stepped Back From Brink, Will Hillary? - 13th Oct 16
The Structure and Future of Gold in the Investment and Monetary World - 13th Oct 16
Can Trump Still Win Despite Opinion Polls, Bookmakers and Pundits all Saying Hillary has Won? - 12th Oct 16
Gold and Crude Oil - General Stock Market Links - 12th Oct 16
Samsung's Galaxy Battery Just The Tip Of The Iceberg - 12th Oct 16
Hillary: Deceit, Debt, Delusions (Part Two) - 12th Oct 16
Gold and Silver Metals Show Strength Relative to the USD Index - 12th Oct 16
Announcing Trader Education Week -- a Free Event to Help You Learn to Spot Trading Opportunities - 12th Oct 16
Confirmed Stock Market Sell Signals - 11th Oct 16
Hillary Deceit, Debt, Delusions - 11th Oct 16
Trump Support Crashes to New Low of 6.4 on Betfair Odds Betting Market - 11th Oct 16
The World Is Turning Dangerously Insular - 11th Oct 16
An American Tragedy: Trump Won Big - 11th Oct 16

Free Instant Analysis

Free Instant Technical Analysis

Market Oracle FREE Newsletter

LEARN to Trade

Consumer Debt Financed Demand Deleveraging Reality Check for Retailers

Companies / Sector Analysis Sep 09, 2010 - 04:41 AM GMT

By: James_Quinn

Companies Diamond Rated - Best Financial Markets Analysis ArticleHaving worked for a big box retailer for 14 years, I understand the dynamics of a high growth rollout of stores as a key to increasing market share and profits. Some of the best retail names in the US have practiced the identical strategy of concentrating many stores in each market to drive the small competitors out of business. This strategy worked wonders for Lowes, Wal-Mart, Target and Kohl's during the early part of this decade. The combination of solid same store sales and opening new stores is a fantastic combination during good times. The results actually make the CEOs of these companies think they are brilliant. Their store expansion models based on rosy assumptions are followed like they can't go wrong.

What these CEOs didn't realize was that their expansion plans were based on lies and frauds. If they had advisors who could give them a reality check, they could have avoided the massive downsizing that awaits them. Their hubris didn't leave room for a reality check. The population of the US has grown from 281 million in 2000 to approximately 308 million today. We've had a 10% population increase in 10 years. Consumer expenditures have grown from $6.7 trillion in 2000 to $10.3 trillion today. This is a 54% increase over the course of the decade. Amazingly, real average weekly earnings have only gone up by 6% in the last decade.

The chart below tells the story that retail CEOs have been ignoring for a decade. Consumer credit has advanced from $1.5 trillion in 2000 to $2.4 trillion today. This 60% increase in consumer debt has allowed workers who have barely increased their earnings to spend like they made a lot more money. This debt fueled consumption binge led major retailers to expand in order to keep up with the delusional consumers.


Retail America has run directly into a brick wall. Below are charts detailing the expansion history of four of the most admired retailers in America. Lowes grew their store count from 600 to 1,700 over the course of the decade, a 183% increase. Wal-Mart grew their store count from 4,000 to 8,500, a 113% increase. Target grew their store count from 1,000 to 1,750, a 75% increase. Kohl's grew their store count from 300 to 1,050, a 250% increase. Same store sales are the true measure of a retailer's health. When comp store sales are +5% or better, retailers make substantial profits and confidently build new stores. As the charts below clearly show, comp store sales have been in a substantial downtrend since 2006. The new stores that have been built in existing markets are over cannibalizing their existing stores.

Lowes has 500 more stores today than it had in 2005, $4 billion more sales, and $1 billion less profits. Target has 340 more stores today than it had in 2005, $12 billion more sales, and the same profit. Kohl's has 240 more stores than it had in 2006, $1.6 billion more sales, and $100 million less profit. Only Wal-Mart has kept the profits flowing, mostly due to its international expansion. The tough times have only just begun for these retailers.

The American consumer is still heavily indebted. Much of the retail spending in the last decade came from mortgage equity withdrawals. Using your home as an ATM is history. Home equity is at an all-time low and 25% of homeowners are underwater. Home prices are destined to fall another 20%. There are 15 million people unemployed. Consumer expenditures still account for 70% of GDP. In order for the US economy to achieve equilibrium, consumer spending will need to regress back to 65% of GDP. This will require an annual reduction in consumer spending of $800 billion. The CEOs of these retailers have not grasped the implications of this coming adjustment in our consumer society.

There are three major errors that have been committed by every retailer in America. They failed to recognize that the spending per household was 30% over inflated due to debt financed demand. They then extrapolated the spending per household using a 5% to 10% growth rate. Lastly, they ignored the fact that their competitors had the same strategy. There are 1.5 million retail establishments in the US. Thousands of these stores are going out of business every year.

Lowes, Wal-Mart, Target, and Kohl's have yet to recognize their predicament. They are still blinded by their hubris. The point of recognition will occur within the next year. Each of these retailers will be closing hundreds of underperforming stores in the next two years. Time for a reality check.

Join me at to discuss truth and the future of our country.

By James Quinn

James Quinn is a senior director of strategic planning for a major university. James has held financial positions with a retailer, homebuilder and university in his 22-year career. Those positions included treasurer, controller, and head of strategic planning. He is married with three boys and is writing these articles because he cares about their future. He earned a BS in accounting from Drexel University and an MBA from Villanova University. He is a certified public accountant and a certified cash manager.

These articles reflect the personal views of James Quinn. They do not necessarily represent the views of his employer, and are not sponsored or endorsed by his employer.

© 2010 Copyright James Quinn - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

James Quinn Archive

© 2005-2016 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife