Be Careful To Buy The Retail Sector Right Now [J.C. Penney Company, Inc., Staples, Inc., Costco Wholesale Corporation]

retail-shoppingGeorge Leong: Everyone is blaming the poor economic numbers we have been seeing on the misery of the horrific winter.

Federal Reserve Chair Janet Yellen suggested that the winter was to be partly blamed for the somewhat lousy economic readings in December through to February. With the fierce winter, people are hesitant to venture out to look for work, buy groceries, eat at restaurants, go and watch a movie, or even travel.

While I do agree the harsh winter has impacted the economy somewhat, you can’t blame everything on the weather. If this were true, then we would be starting to witness pent-up demand for goods and services in the upcoming months as the snow and cold dissipate.

Or maybe it’s just because the economy is stalling to some degree.

The jobs market is lousy and will need to pick up some momentum. Maybe with the warmer weather to come, job seekers will venture out and look for work, or perhaps companies are just not hiring as much as the government wants to see, given all of the monetary stimulus that has been spent on driving consumer spending in the country.

The one area that looks pretty fragile at this time is the retail sector. Consumers simply appear to be holding back on expenditures and waiting for deep discounts.

In January, the retail sector reported a 0.4% decline in sales, representing the second straight month of declines on the heels of a revised 0.1% decline in December, according to data from the U.S. Department of Commerce. It’s likely the extreme bad weather conditions in January and February contributed to the soft results—at least we hope that’s the case.

Yet despite winter’s impact, the retail sector is clearly under some duress that would have occurred regardless of the weather. The winter may have just brought up the issues faster.

Office supplies company Staples, Inc. (NASDAQ:SPLS) announced last week that it would close the doors on up to 225 of its 1,846 stores in the United States and Canada. Yes the weather may be partly to blame, but it takes a lot more than a few months of winter misery to cause this. Staples blamed lost sales to the big mass market chains and online spending in the retail sector. Yet with the muted growth in corporate America, I’m not surprised to see this.

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