Consumers Still Unaware of Impending Doom: Target and Kohl's Flatline

10-03-2010 • minyanville.com/businessmarkets

The mom-and-pops are already closing up shop in record numbers. The shocking revelation that major mega retailers such as a Target (TGT) or a Kohl's (KSS) might not exist in 10 years won't be believed today. Ever hear of Montgomery Ward? What most people don't understand is that the mega-retailers' strategic plans were based upon never-ending store growth, 5% comparable store growth for all eternity, a continuous flow of increasing easy credit, the American population staying frozen between the ages of 30 and 50 years old, and a delusional materialistic greed embraced by the masses. Mega retailers without growing comp store sales are like sharks that can't swim: They will die. The comp store sales growth is essential to overcome the effects of cannibalization from new stores. The CEOs of these companies have never modeled a decade of declining sales. They still believe it can't happen, even though it must happen. Delusions die hard, especially for CEOs. I'll use Target as an example. Almost everyone would agree it's been one of the best-run retailers of the last two decades. It has over 1,700 stores in the US, with annual sales exceeding $65 billion and profits of $2.5 billion. How could a retailer this large and successful ever go bankrupt? It has $16.5 billion of debt and $15.3 billion of equity on its balance sheet for a 52% debt to equity level. This isn't a dangerous level, but it's a heavy debt load. The deterioration always begins on the sales side. Comp store sales have been deteriorating since 2005 and were negative in 2008 and 2009.

1 Comments in Response to Consumers Still Unaware of Impending Doom: Target and Kohl's Flatline

Comment by PureTrust

Entered on: 10/4/2010 3:40:40 AM

If the nation had stayed on the gold and silver standard, there would not have been such gigantic national growth. But the growth that would have been, would have been so extremely stable and solid that it would have never died.

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