To The Moon

In recent times, several American retailers have reported financial results below expectations, leading to significant drops in their stock prices. One common reason attributed to this phenomenon is "zero-dollar shopping."

However, this term goes beyond mere promotional activities by businesses or "Buy Now, Pay Later" (BNPL) schemes; it refers to outright "robbery" or "theft."

Indeed, during the pandemic period, such behavior emerged in various parts of the United States. Surveillance videos uploaded online during that time depicted groups of American youths gathering on the streets. Employing a "flash mob" approach, they kicked the glass doors of convenience stores, swiftly shattered the glass, and rushed in to loot all the merchandise.

Retailers mentioning this concern include

$Dick's Sporting Goods(DKS)$ $Foot Locker(FL)$ , attributing their profit decline to increased theft incidents;

$Target(TGT)$ a major general merchandise retailer;

$Lowe's(LOW)$ a large home improvement retailer;

$Tapestry Inc.(TPR)$ , $Abercrombie & Fitch(ANF)$ $Gap(GPS)$

$Macy's(M)$ all indicating record-level losses due to organized theft;

$Dollar Tree(DLTR)$ $TJX Companies(TJX)$ $Dollar General(DG)$, all experiencing substantial profit drops attributed to theft (even discount supermarkets aren't exempt).

From an investor's perspective, the concentrated issues surfacing during this earnings season indeed warrant attention.

1. "Zero-dollar shopping" is just a euphemism. Whether external robbery, internal theft, or collusion between insiders and outsiders, all lead to losses for companies, direct devaluation of assets.

2. This situation isn't novel, as it emerged during the pandemic; some African American groups even consider it a form of "reparations" due to the perceived ancestral culpability of white people.

3. Bizarre U.S. laws have fueled this trend. For instance, California's "Proposition 47" stipulates that theft below $950 is essentially non-punishable, and more robbers provide greater safety. Some lawmakers have even suggested that if the stolen goods are used to pay rent, buy baby formula, or afford meals, the robbers can avoid prosecution. Losses incurred by shop owners can be compensated by public funds.

   

4. All companies conduct regular inventory audits, so this issue likely wasn't isolated to this quarter; executives were likely aware of such occurrences. Why it's being prominently disclosed this quarter remains a matter for consideration.

5. Financial strain among low-income groups, particularly after the depletion of pandemic subsidies and exacerbated by current inflation, has driven them towards such activities.

However, I believe this is more of an excuse for underperforming retail business.

• In reality, the Q2 financial reports being released mostly cover performance from April to June, a period when the U.S. inflation rate might have been receding, but prices reached their peak. Thus, an industry-wide decline during this time isn't surprising.

• Additionally, intensified industry competition has made it challenging for retailers to secure higher profits. For example, the rivalry between discount retailers DLTR and $Dollar General(DG)$ has been strong, with DG outperforming DLTR in a previous quarter due to better sales in a specific category (food).

• Furthermore, online retailers are also vying for market share. Apart from established giants like Amazon, Costco, and Walmart, who are increasingly emphasizing online memberships, new entrants like the American version of Pinduoduo called Temu are also making significant inroads into "zero-dollar shopping" (true BNPL).

In conclusion, weak sales are indeed the true cause behind the significant stock price drops.