Bob’s Journal 2/27

Too Many Retailers, or a Fading Economy?

The number of retailers closing stores or going out of business continues to climb.

Craft and fabric retailer Joann announced this week that it would conduct going-out-of-business sales at all its stores after it receives court permission. Joann joins a long list of retailers that announced over the last couple of years they were closing stores or going out of business, including Party City, Big Lots, Macy’s, 7-Eleven and Walgreen’s Boots Alliance.

In 2024, major retailers closed 7,325 stores, according to Coresight Research, as quoted by cnbc.com, the highest number since the pandemic year of 2020. Excluding 2020, 2024 had the most closures since 2017, according to S&P Global Market Intelligence.

In 2025, almost 2,000 major retail store closings already have been announced. Coresight estimates that by the end of 2025, store closings will exceed 10,000.

Some analysts see fading retailers as a sign of a fading economy. They say consumers are reducing their spending and a recession can’t be far away.

But there are a couple of other explanations.

Since at least the early 1990s, some analysts have said there are too many retailers in the United States. The population and household incomes can’t support all the existing stores, much less the planned new ones. They like to say the United States is “overstored.”

It could be that forecast finally is coming true. There simply are too many stores and different retailers in the United States.

Another explanation is the failing retailers didn’t adapt to a competitive environment and weren’t managed well.

Some took on too much debt or expanded too quickly. Others lost touch with their customers and failed to adjust operations to post-pandemic changes in consumer behavior and preferences.

Retailers that didn’t integrate their online operations and physical stores have done poorly.

While store closures grab the headlines, at the same time other retailers are doing well and expanding. Winners in recent years include Walmart, Costco, Dick’s Sporting Goods and others.

Online retailers, such as amazon.com, also have done well. Specialty retailers, in particular, seem to be losing ground to online vendors. That could be a problem for owners of retail real estate.

Coresight said that the high number of closings in 2024 was partly offset by 5,970 store openings, the most since Coresight began tracking data in 2012.

Even so, some of the problems with retail might be cyclical and indicative of lower economic growth.

While Walmart has done well, last week it reduced its forecast for the rest of 2025. That led to a price decline in its stock, as well as the stocks of some other retailers.

Recent economic data indicate that lower income households have reduced spending while households in the top 10% of incomes continue to spend. Retailers now are more dependent on upper-income households than in the past.

The economic effects of recent policy changes and announcements determine what happens next.

Reduced immigration likely will lead to lower consumer spending. Many businesses and consumers are concerned about the effects of tariffs and are constraining spending until we know more.

Bad News for Europe is Bad News for the Rest of the World

Europe is in economic and political turmoil. That’s obviously a problem for Europeans, but it’s also a concern for the rest of us.

The European Union hasn’t come up with a unified response or strategy in response to Russia’s invasion of Ukraine. That raises questions about security for the rest of the continent.

The political problems in Europe are making headlines.

The long-dominant political parties in many of the countries have been losing elections.

The new leaders support policy changes. But in most countries, the winning parties don’t have majorities, so they must form coalitions with other parties. The result is increased uncertainty about future policies.

Economic problems are a major cause of the political changes.

Productivity and economic growth slowed dramatically in Europe, and there’s no sign of a reversal. Due to heavy regulations, the economy lacks flexibility and dynamism.

The economy, especially in Germany, depends on legacy manufacturing industries that are shrinking.

Europe’s economy also is focused on exports to other countries. Those exports have fallen, and the decline is likely to continue.

Innovations in other countries make European products less attractive. The tariff and trade wars also reduce Europe’s exports.

The economic problems in Europe are so severe that the European Commission asked for a study and report by former European Union Bank President Mario Draghi.

The report doesn’t pull punches on Europe’s competitiveness problems. Draghi proposes significant changes in Europe’s regulations, as well as ways to strengthen its single-market concept and increase investments.

But even Draghi’s strong recommendations don’t address all the factors that cause Europe’s stagnation and lack of competitiveness. In addition, there doesn’t seem to be a political consensus in favor of Draghi’s most significant proposals, much less additional changes that are needed but not included in the report.

Continued stagnation in Europe matters, because Europe is a major market for many U.S. companies and other global businesses. Europe’s failure to change will keep a lid on global economic growth.

This Year’s Wisdom from Chairman Buffett

The conglomerate Berkshire Hathaway issued its annual report last week, and, as usual, the report included the annual letter from chairman Warren Buffett.

As Buffett said, the annual letter is “additional commentary about what you own and how we think.”

Buffett stated plainly that he makes mistakes and that mistakes need to be acknowledged and corrected.

One of his early big mistakes was to buy Berkshire Hathaway. It looked cheap, but the business was in more trouble than he realized. Fortunately, he was able to transform it into the conglomerate it is today.

Buffett says that of the 189 businesses Berkshire owns, there are a number that shouldn’t have been purchased.

He wrote that while it’s important to learn lessons from mistakes, it’s also important not to dwell on them but to focus on the things that went well.

“And our experience is that a single winning decision can make a breathtaking difference over time,” Buffett wrote.

His decision to invest some of Berkshire’s capital in GEICO many years ago is one of the great decisions he cites that overshadow the mistakes.

In 2024, Buffett said 53% of the operating businesses owned by Berkshire Hathaway reported a decline in earnings. Yet, the company did well overall, partly because it owned a lot of treasury debt that delivered returns.

Buffett also boasts about the large tax payments the company makes to the U.S. Treasury, a total of $26.8 billion in 2024. Berkshire received much criticism recently for increasing its cash holdings instead of investing it.

Buffett defends the cash holdings at some length. He also points out that, despite the larger cash hoard, most of Berkshire still consists of equity holdings. Many of those holdings are private companies instead of publicly listed securities.

You’ll also find a defense of capitalism and the United States that includes the following:

“The American process has not always been pretty — our country has forever had many scoundrels and promoters who seek to take advantage of those who mistakenly trust them with their savings. But even with such malfeasance — which remains in full force today — and also much deployment of capital that eventually floundered because of brutal competition or disruptive innovation, the savings of Americans has delivered a quantity and quality of output beyond the dreams of any colonist.”

There’s more in the letter, including a discussion of the property casualty insurance business that is a major part of Berkshire and a review of the company’s growing investments in Japan.

As always, Buffett’s annual letter is worth reading.

The Data

The Consumer Sentiment Index from the University of Michigan was 64.7 for February. That’s down from 67.8 at mid-month and 71.5 at the end of January. February’s final level was the lowest since November 2023.

Consumers were less positive about both current conditions and expectations, without regard to their age, income or wealth.

The Consumer Confidence Index from The Conference Board tumbled 7.0 points in February to 98.3. That’s the biggest monthly decline since August 2021. Both current conditions and expectations declined.

But expectations declined the most, bringing the Expectations Index to 72.9. It is below 80 for the first time since June 2024. The Conference Board found that an Expectations Index below 80 often signals a recession is ahead.

The PMI Services Flash Index for the first half of February was 49.7, below the 51.2 recorded at the end of January.

The PMI Manufacturing Flash Index of 51.6 in mid-February was a small improvement from 51.2 at the end of January.

The PMI Composite Flash Index for the economy was 50.4 in mid-February, down from 52.7 at the end of January.

The Leading Economic Index from The Conference Board fell by 0.3% in January to 101.5, which reversed most of the gains of the two previous months.

The index has declined 0.9% over the last six months. That’s better than the 1.7% decline over the previous six months, which The Conference Board wrote indicates the economy improved.

Existing home sales fell 4.9% in January, the biggest decline in seven months, after rising 2.9% in December. But the number of existing home sales was 2.0% higher than 12 months earlier.

New home sales dropped 10.5% in January after rising 3.6% in December.

The Dallas Fed Manufacturing Index for February was negative 8.3. It was 14.1 in January, a three-year high. Most measures in the index turned negative.

The Philadelphia Fed Manufacturing Index was 18.1 in February, a decline from 44.3 in January, the highest level since April 2021. The index indicates manufacturing in the region continues to expand but at a lower rate than in January.

The Richmond Fed Manufacturing Index was 6 in February, a jump from negative 4 in January.

Home prices declined 0.1% in both December and November, according to the S&P Corelogic Case-Shiller Home Price Index. Over 12 months, the index was up 4.5% through December and 4.3% through November.

The FHFA House Price Index rose 0.4% in both December and November. Its 12-month increase was 4.7% through December and 4.5% through November.

New unemployment claims rose by 5,000 to 219,000 in the latest week.

Continuing claims, which lag a week behind new claims, increased to 1.869 million from 1.845 million.

The Markets

The S&P 500 lost 2.82% for the week ended with Tuesday’s close. The Dow Jones Industrial Average fell 2.05%. The Russell 2000 declined 5.19%. The All-Country World Index (excluding U.S. stocks) decreased 0.66%. Emerging market equities retreated 1.01%.

Long-term treasuries gained 3.77% for the week. Investment-grade bonds rose 1.68%. Treasury Inflation-Protected Securities (TIPS) added 1.26%. High-yield bonds advanced 0.33%.

In the currency arena, the U.S. dollar declined 0.65%.

Energy-based commodities fell 2.61%. Broader-based commodities lost 2.01%. Gold decreased 0.72%.

Bob’s News & Updates

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