An Objective Look at the “Decline of Traditional Retail” - Chaikin Analytics

An Objective Look at the “Decline of Traditional Retail”

This past weekend I went to a mall for the first time in I don’t know how long. While I was there, a few things jumped out at me. First, it was pretty empty considering that we were less than two weeks from Thanksgiving and the retailers have already been touting their pre-holiday sales. Next, certain brands just have an audience and certain brands don’t when it comes to a retail presence. For instance, the Apple store was crowded with people seeking help at the “Genius Bar” or simply checking out the latest hardware. Contrast this with the Microsoft store, which did not have a sole in the space. Yes this was one mall on one day but I seem to recall the same situation when I was last there as well. Finally, on four different occasions, I had to slide out of the way of a person who was on a path to walk right into me because they were heads down in their phone. This is not a rant on us being glued to our devices…that’s just the way it is, get used to it for now. But it was pretty funny that with all the room in the place, these people still managed to almost collide with me.

This had me thinking out the state of consumerism. The only reason that I was there was because I had some time while my daughter was at her Nutcracker ballet rehearsal (she has four parts in the show this year and I am really proud of her). I was not there to shop, I will do the bulk of my shopping online (who am I kidding, it will likely be 100%). So if we assume that more and more people are like me and will shop online, what does that say for retail stocks?

Fast forward to Sunday night when I am looking over the charts and trends in the market to prepare for the week ahead, and I was shocked to see that the SPDR S&P Retail ETF (XRT) had been given a fresh “Bullish” rating by our Chaikin Power Gauge ETF model. This made no sense, the mall is empty, everyone is going to shop online. That’s the narrative, how can the retail ETF have a bullish rating? 

Here is the chart, sure enough the rating is bullish. Additionally, the fund has actually been outperforming the SPY of late and it appears to be under accumulation based on the Chaikin Money Flow indicator. 

Now we can look at a different ETF, one that is designed to give investors exposure to the theme of the decline in traditional shopping. The ProShares Decline of the Retail Store ETF with the creative ticker symbol EMTY (empty) is billed as: 

For ETF investors, retail disruption presents an opportunity. ProShares Decline of the Retail Store ETF (EMTY) is the first ETF designed to help investors benefit from the decline of bricks-and-mortar retailers. The fund provides daily short exposure (-1x) to the Solactive-ProShares Bricks and Mortar Retail Store Index, which consists of retailers that rely principally on revenue from physical stores. EMTY is designed to benefit each day the index declines in value.

But a quick look at the chart tells us that it’s the fund that is declining at present. Though we do not rate it in our model, we can see that EMTY is in a downtrend and has been lagging the SPY since September. Additionally, the bearish Chaikin Money Flow readings tell us that EMTY is under distribution. 

I am not trying to make a call that there is going to be some big shift back to traditional retail. I honestly believe that the opposite is more likely to be the case, from clothes to gifts to groceries, it is just easier (at least for me) to shop online. I am trying to point out how the prevailing narrative in the market is not always the best way to structure your investments. In fact, by the time a narrative has become well understood, the stocks and ETFs related to it have usually made a move already. Remember, XRT has not had a bullish rating in our model in more than a year and it had also been underperforming the market for much of 2019. 

Just to make the point of using objectivity a little clearer, The ProShares Online Retail ETF (ONLN) has a Bearish ETF rating in our model and has been underperforming the SPY since June. This completely flies in the face of the argument that shopping online is going to completely replace going to a physical store as the narrative will have us believe.  

More often than not, it is better to use tools that allow you to look past the prevailing narrative and focus more on the objective factors that are more likely to drive investment performance. In this case, XRT has a bullish ETF rating. Based on the individual holdings in the fund, there are more stocks with bullish ratings in our 20-factor model than bearish ratings and XRT is outperforming the SPY. 

Imagine if we all did a portion of our shopping in the mall this holiday season!

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3 thoughts on “An Objective Look at the “Decline of Traditional Retail””

  1. I don’t know about mall shopping since I have only been to a mall to shop maybe two or three times in the last ten years. But where we do shop a lot is at stores like Costco, TJX, Target, Walmart, Home Depot & grocery stores. I just moved from Northern Virginia to near Knoxville, TN and at both places these brick & mortar stores are packed, especially Costco.

  2. the elderly will shop online if they have a computer and internet. More variety and selection in one place. Able to compare price with a mouse click.

  3. The malls will disappear just like the department stores from the previous century. The big box stores such as lowes, home depot and costco and stores closely located near them will remain. People still want to see and feel the merchandise , and food shopping for fresh produce will never go away.

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