Summary
Year over year comparatives and expectations for pent up demand do not capture the fundamental shift in spending habits experienced over the past 9 months. Moreover, the Goldman Sachs viewpoint ignores the broad based nature of the retail recession. Discretionary retailers will not be the first to rebound, rather, hard goods and household necessities, followed by value priced apparel should provide the greatest short term return. Overall, the author is correct in his belief that WMT represents a continued value play at its current price.
Analysis
The consumer spend recession has impacted virtually every major category of merchandise is almost the same way. Consumers did not simply reduce luxury or discretionary spending, they redefined discretionary to delay or eliminate purchases previously thought to be necessary. Replacement purchasing for wardrobes, appliances, electronics and white goods have all suffered dramatically. None of these is by definition trend based, or fashion driven. While trend, fashion and product innovation are important drivers to retailers in these categories, the core health of their business has always been in the cycle of replacement and upgrade. This cycle has been delayed, not eliminated. When consumer confidence returns sufficiently to loosen the wallet (and I do not think Q4 of 2009 is that time) merchants positioned with delayed necessities will benefit the most. WMT excels in these categories.
Beyond that, value will remain an integral part of the consumer psyche for some time. The author is correct that consumer behavior is altered, at least within a generational limit. This generation will NOT return to the free spend irresponsibility of the 80's and 90's. Retail stocks dependent on apsirational lifestyle value statements (those that create value as a result of marketing and brand attraction) will be the slowest to rebound, while those delivering observable and verifiable tangible need value statements will benefit. WMT will continue to outperform TGT in this environment, while Kohls and JCP will outperform Macy's. Nordstrom's will outperform Saks and Neimans, while Coach, Gucci and others will continue to lag.
