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Monday, May 18, 2009


davidowitz on retail

via jesse's cafe americain with exemplary color of his own to offer -- this most recent update on the devastation overtaking the american retail sector by howard davidowitz thanks to aaron task and tech ticker.

"We're in a complete mess and the consumer is smart enough to know it," says Davidowitz, whose firm does consulting for the retail industry. "If the consumer isn't petrified, he or she is a damn fool."

Davidowitz, who is nothing if not opinionated (and colorful), paints a very grim picture: "The worst is yet to come with consumers and banks," he says. "This country is going into a 10-year decline. Living standards will never be the same." ...

As for all the hullabaloo about the stress tests, he says they were a sham and part of a "con game to get private money to finance these institutions because [Treasury] can't get more money from Congress. It's the ‘greater fool' theory."

"We're now in Barack Obama's world where money goes into the most inefficient parts of the economy and we're bailing everyone out," says Daviowitz, who opposes bailouts for financials and automakers alike. "The bailout money is in the sewer and gone."

you're not going to find a sharper opinion on wall street. my heart sinks listening to davidowitz because deep down i suspect he's absolutely right -- a massive liquidation in the real economy awaits, and regardless of government fiscal stimulus we are unlikely to transition seamlessly to our new demand-management economy.

moreover, if government goes too far down the bailout hole and abuses the treasury to repair balance sheets directly rather than borrowing to spend and maintain cash flows as a vehicle to a slower private sector deleveraging, there exists a non-trivial chance of out-and-out collapse.

UPDATE: a nice addition from paul kedrosky.

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His comment on percapita retail space is something I have been harping about forever.

US average is 22 sq/ft per person. He hopes we can manage to keep 12 sq/ft per person. The average in Europe is 2.2!!!!!

Granted the wastefulness of the suburbs requires a higher number, but I really don't need to have choose from 30 places in a 5 mile radius to buy a TV much less need for a hundred plus stores to buy a can of energy drink or bottled water.

Let's split the diff and call it 6 sq.ft.

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it's also lumpily distributed, potus. urban areas not infrequently have in excess of 50 ft^2/capita. future ghost towns, imo.

check tables 7 and 8 as well as figure 9 in this assessment of retail trends in suffolk county, new york. (this includes the hamptons, a quintessential boom area.) in breaking down by community, one can see the dispersion of growth -- but across virtually all communities retail space per capita has doubled, trebled or more since 1970.

the potential for liquidation in a long-term regearing of the american economy to the thriftier model that was prevalent in the 1970s is absolutely terrifying. has any society ever been so malinvested for such a shift?

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This FRB study is very interesting -- particularly the chart about the delevering consumer.

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