Jobs Report Turns Tables on Traditional Retail Havens

The lower than expected jobs numbers that the Bureau of Labor Statistics released last week could signal a trend more disturbing than a potential rise in unemployment. Here's why.

Prior to last week's jobs report, there was an unprecedented divergence between retail sales data and the improving jobs data, but now we are beginning to see the divergence close once again.

Rather than seeing a boost in sales data from the low price of gas, as many experts have predicted, we are in danger of falling back into the perpetually vicious cycle of low employment and low demand.

If so, it's doubtful that the large consumer staple retailers will remain the reliable defensive plays they have been in the past. The compounding pressure on middle and low income consumers will likely continue to prohibit large enough increases in consumption to push retail demand up.

Luxury retailers might be a better bet, but they are highly speculative, and their customers are often highly leveraged. That gives this space a kind of second order exposure to macro instability.

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One contrarian, long term play is Whole Foods Market (NASDAQ: WFM). Whole Foods might appear to be particularly susceptible to pull backs in discretionary spending and vulnerable to substitutions, a closer look shows otherwise. Their strong earnings (1.60 eps), strong profit margins (they have an ROIC of 15%), rate of annual store growth (9%), and brand dominance in a rapidly growing segment make WFM stock  a very attractive buy and hold opportunity.

In an increasingly stratified economy, where the bulk of spending insecurity falls on the have-nots, it makes sense to look at retailers who specialize in what the wealthy consider "necessities." Especially those that help assuage the guilt of buying in a downtrodden economy.

Whole Foods' core market do not consider shopping there to be "discretionary." For them, healthy, organic eating are a must. This kind of "practical luxury" can become the closest thing to a defensive play in a retail sector that is typically anything but.