As expected, the retail sales numbers released today were indeed horrible. What does that mean for the tech sector?
First, how bad were the retail sales numbers?
According to the
Census Bureau retail sales report for September, estimated monthly sales for retail and food services on a seasonally adjusted basis fell 1.2% last month from the previous month. This is the biggest monthly percentage decline in more than three years. It is also represents a 1% drop from September 2007.
According to the New York Times, MasterCard reported last week that spending on consumer electronics and home appliances dropped 13.8 percent in September compared with a year ago. That number is by far the largest recorded since MasterCard began tracking the category in 2003, and twice the largest previous monthly drop in such spending.
Given that consumer spending accounts for 70 percent or more of economic growth, the tech sector cannot escape the impact. And based in the MasterCard report, consumer electronics is reflecting a disproportionate amount of the consumer slowdown.
Impacts on the tech sector --
Here are some of my quick thoughts on the subject. Though some of these companies are quite large and operate in both consumer and enterprise segments, the problems in consumer spending will nevertheless serve to drag down overall company performance.
Internet impacts --
1. Companies that fund advertising targeted at consumers will more than likely see budgets shrink. The big advertising networks that manage all these ads will be impacted. Impacted companies include ValueClick (VCLK) and Omniture (OMTR). Note that Yahoo (YHOO), Google (GOOG), Microsoft (MSFT) and Time Warner (TWX) all own huge ad networks.
2. The web sites that display all those ads will be hit by a double whammy. First, there will be fewer ads to host. Second, a belt-tightening consumer will be reluctant to click on those banner or search ads. Both will serve to reduce revenues for the web sites. Impacted companies: all the big portals like Yahoo, Google, Time Warner (their AOL property) as well as too many other sites to name.
3. For some reason, everyone still considers Amazon (AMZN) and eBay to be tech stocks. If consumers aren't buying, these companies will get hurt like regular brick and mortar retailers.
