Retail sales: clicks instead of bricks

Wednesday, July 19, 2017 // Written by Enzio von Pfeil

Just who does NOT shop online?  Ever thought about what this means for growth in an economy and for Fed policy?


  1. Clicks instead of bricks. Have you noticed yourself visiting Amazon etc more and more, thereby obviating the need to spend in generally more expensive, physical shopping malls?
  2. Consumption multiplier effects different.  Think about it. When you click, you engage a warehouse, record keeper and transport company. But when you :"go brick", i.e. visit the shopping mall, you indirectly are hosting a bunch of other employees: sales staff, check-out counters, janitors, security guards and the like. At its simplest, means that online shopping ("clicks") must have less of an economic impact than store shopping ("bricks") . does.
  3.  Economic impact.  In any economy, "private consumption"  accounts for at least 70% of GDP. So it's a hefty chunk of the growth equation.  But with clicks replacing bricks, a sale no longer is a sale - just like there is "good"and "bad" cholesterol.  My guess is that the economic impact of a click sale is about one half that of a brick sale: clicks require less employees than bricks do!   This means that even if the headline "consumption " figure is the same as before, the impact of click consumption is half of brick consumption. Suddenly, our click geeks have shriveled "private consumption" to about 35% of GDP! So, even if "consumer sentiment" surveys indicate robustness, as they do in the States and Europe, don't think for a minute that this is going to translate into stronger economic growth: clicks have emasculated private consumption.
  4. Implication for Fed policy.  Readers know our view: the Fed is driving by using a rear view mirror.  By relying on that 70-year old inflation framework of the Philips curve, it is negating the effects of technology ("clicks instead of bricks", for instance) and globalization(leading to an infinite supply of goods)  on inflation.  By sticking to this  anachronistic framework , however, the Fed has to keep relying on golden oldies like consumer sentiment indicators as "harbingers" of inflation.  The bottom line is that by insisting on driving a 1947 Ford, the Fed risks overshooting in the interest rate department. Unnecessarily high real interest rates will choke America's recovery - and thus earnings growth; this slowdown will be discounted by markets six month s in advance, meaning that we should expect some form of a market crash as of 4Q17...
  5. Investment implication. Anywhere in the world, keep shorting retailers relying on bricks, and keep accumulating those relying on clicks. Along with the transport companies and warehousing quoted stocks that symbiotically are linked to letting your fingers do the walking.  SHORT ESP. PRIME SHOPPING MALLS & MALL REITS (see FT of 23/24th July 2017, p. 11 for a brilliant article on our theme: "Chinks emerge in the armour of prized malls".
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