Increased Theft Hurting Retailers’ Profits

Good morning,

Increased theft hurting retailers’ profits, Manhattan remains the most expensive place to live in the US, and moderating inflation buoys consumer spending. Let’s delve into today’s topics.

📈 Market Update

🛍️ Increased Theft Hurting Retailers’ Profits

Nordstrom, Ulta, Dick's Sporting Goods, Macy's, Target, Dollar Tree, Home Depot, and Walmart reported during recent earnings calls that increased retail theft is negatively impacting their profits. Many companies said theft levels are at historic highs, often perpetrated by organized retail crime rings rather than individual shoplifters. Retailers are taking defensive measures like locking up merchandise, removing products from shelves, and discontinuing some items. However, executives said these tactics will take time to reduce losses. The National Retail Federation estimates shrink from theft cost retailers $94.5B in 2021, and has since increased from there.

Safety Concerns Rising Alongside Theft:
In addition to financial losses, retailers voiced concerns over safety issues and violence associated with theft. Target's CEO referenced a 120% increase in violent theft incidents this year. The ransacking of a Nordstrom store in California, with up to $300k in merchandise stolen, was cited as an example of brazen organized retail crime. Retailers emphasized the need to collaborate with government and law enforcement to find solutions.

🏙️ Manhattan Remains the Most Expensive Place to Live in the US

Manhattan is the most expensive place to live in the US, with a cost of living 122% higher than the national average. The extremely high costs are largely driven by housing, entertainment, dining, and alcohol expenses. Manhattan contains 7 of the 10 most expensive neighborhoods in the country, with average rents over $4,300 per unit. The concentration of wealth from millionaires and billionaires allows landlords to push rents well beyond normal levels. Moreover, the high costs have spilled over to the outer boroughs of Brooklyn and Queens, which are also now among the most expensive areas to live.

💰️ Moderating Inflation Buoys Consumer Spending

The latest inflation data showed encouraging signs of cooling price pressures, with the Fed's preferred core PCE price index posting back-to-back 0.2% monthly increases in June and July - the smallest gains since late 2020. The moderation boosted consumer spending, with inflation-adjusted outlays jumping 0.6% in July, the strongest advance this year. While services inflation accelerated, the report supports growing expectations the Fed can avoid recession as it fights inflation. Consumers are drawing down savings and powering growth, leading economists to push out or scrap recession calls. Still, spending may slow as ephemeral catalysts like summer blockbusters wane, savings dwindle, and loan payments resume.

✍️ Further Reading

• Biggest Indian Bank’s Unit Plans $2 Billion Private Credit Fund (BBG)

• Rising CRE Loan Delinquencies Aren’t Worrying Banks Yet (GS)

• Lenders Ramp Up CRE CLO Modifications (GS)

• CMBS Delinquency Rate Dips in August 2023; Hotel Rate Improvement Pulls Headline Number Lower; Office Cracks 5% (Trepp)

• Marquee Capital Launches Fund With $100 Million Fundraising Target (CS)

• NY Attorney General Accuses Trump of Inflating Property Values by $2.2B (RD)

📊 Chart of The Day