Amazon’s Department Stores to Highlight Apparel

Amazon Seeks Apparel Dominance

Amazon (AMZN) is making plans to roll out brick-and-mortar department stores. The stores are being designed to showcase the ecommerce giant’s private-label lines of clothing as it works to boost sales for its apparel offerings. By stocking physical stores with its jeans, t-shirts, dresses, and other clothing, Amazon provides consumers with the ability to try items on. This gives consumers a shopping experience which is not available through Amazon’s ecommerce site.

Apparel tends to have higher profit margins than other products, but returns cause significant hassle for ecommerce companies. By having a physical place to try on clothes, Amazon hopes to reduce returns. Amazon will also include a mix of clothing from brands which are already sold on its website. However, the focus will be on boosting brand recognition for its own lines of clothing. The first of these department stores are slated to open next year in San Francisco, California, and Columbus, Ohio.

Amazon’s Private Label Ambitions

For years, Amazon has been aggressively expanding the number of private-label categories it offers. It entered the clothing market in 2016 and now has over 100 clothing brands. Amazon wants to use physical stores to sell its own brands, reach a new crop of consumers, and test out its advanced shopping technologies.

The move to open large department stores comes as consumers are venturing into stores again after pandemic shutdowns. Macy’s (M) and Kohl’s (KSS) have posted strong sales in recent months as pent-up demand caused consumers to spend more money at retail stores.

High-Tech Fitting Rooms Coming Soon

The fitting rooms in Amazon’s department stores are expected to be filled with technology. The company is currently testing the idea of allowing customers to scan QR codes of the items they want to try on via an app. Associates would gather the items and leave them in a fitting room for the customer. A touchscreen in the fitting room would enable customers to request more items or review recommendations. Eventually Amazon could deploy robots to fetch sizes and other clothing for customers in fitting rooms.

Amazon’s department store concept is still in the early stages. But once the department stores open and gain prominence, they could cause big changes in the retail industry.

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The Important Part: Investing With Liz Young, a new podcast from SoFi, takes listeners through today’s top-of-mind themes in investing and breaks them down into digestible and actionable pieces.

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The Fed’s September Statement

A Weekly Column With Liz Young

Every week, SoFi’s Head of Investment Strategy shares her economic and market insights in order to help empower readers to take a more active role in their financial futures. This week, see what Liz has to say about the Fed’s September statement.

The Great Wait

There are eight Federal Reserve meetings with a press conference every year, but the quarterly meetings carry more weight. Yesterday one of the quarterlies happened.

Some of the highlights were:

• No formal announcement on when the tapering of asset purchases would begin, but it was signaled that an announcement may be coming as soon as November.

• An increased inflation (PCE) projection for 2021 from 3.4% to 4.2%, and for 2022 from 2.1% to 2.2%.

• A decreased GDP projection for 2021 from 7.0% to 5.9%, but an increase for 2022 from 3.3% to 3.8%.

• Two more Fed officials (now 9 out of 18) projected the first rate hike to happen before the end of 2022.

We’re still in a holding pattern on tapering, and Fed Chair Jerome Powell remained vague enough about the timing to allow for uncertainties through fall.

Flexing Their Flexibility

As we slowly exit crisis mode, the Fed continues to be incredibly cautious about making changes to its current monetary policy stance. Understandably so, since markets have been driven to new highs largely by the amount of liquidity and easy financial conditions put in place by the Fed. Pulling the food off the table too quickly could result in hungry mouths.

That said, some notable changes both in projections and tone occurred in this meeting. Namely, the increase in inflation projections and movement in the dot plot showing more members believing sooner rate hikes may be appropriate.

Perhaps more important were Powell’s remarks on the “tests” the Fed looks at to determine when tapering should begin. He discussed the indicators they watch—inflation and employment—and noted that substantial further progress has been made on inflation (check the box) and that many committee members feel that substantial further progress has also been made on employment, with Powell himself considering it “all but met.”

That’s more direct than he’s been in the past and suggests to me that an announcement of tapering is likely to come at the next meeting on November 3rd.

Ready? Or Not?

In my opinion, the economy and the markets are ready for the Fed to start tapering asset purchases. The messaging has been meticulously deliberate and careful, which allowed markets to set appropriate expectations and reduce the chance for a surprise. It’s important to note that a taper is not an ending of purchases, it’s simply a reduction in the amount of monthly purchases. Although there may be a wobble when the taper is announced, I do not expect it to cause meaningful or prolonged volatility in markets.

Rate hikes are a different story and markets will need some time to warm up to the idea. As careful as I expect the Fed to be with the messaging about rate hikes, this piece has more potential to move markets and we will undoubtedly discuss it in detail over the coming quarters. Until then, the liquidity punch bowl is still serving free refills.

Soaring Natural Gas Prices Hurt Global Production

Yara, CF, and Others Curb Production Amid High Gas Prices

Yara International (YARIY) and CF Industries (CF) are among the energy-intensive companies reducing production in response to record-high global prices for natural gas. Companies in steel producing, fertilizer manufacturing, and glassmaking have had to halt and reduce European and Asisan production due to energy prices.

Yara, which is among the biggest fertilizer makers in the world, said it was slashing its ammonia production in Europe by 40%. Meanwhile CF Industries is stopping production in two UK plants because of natural gas costs. Those moves are impacting a number of other industries. For example, meat processors and soft drink manufacturers are facing a shortage of carbon dioxide used in food packaging. This is because shutdowns at fertilizer plants are hurting the supply of CO2.

Gas Prices Skyrocket in Europe and Asia

Prices for natural gas have been climbing for several months, driven by increased demand in Asia, lower-than-usual gas inventories, and tighter supplies from Russia. In Europe, gas prices have climbed over 250% in 2021. Asia has seen a 175% increase in prices. Natural gas prices in the US are also at multiyear highs and double where they were at the start of the year.

To prevent natural gas prices from rising in the US, the Industrial Energy Consumers of America trade group which represents the chemical, food, and materials industries has asked the US Department of Energy to stop natural gas producers from exporting gas.

Steel Companies Feel the Pinch

Steel companies are also feeling the impact from rising gas prices. Some steelmakers suspended operations when energy prices hit peak levels. British Steel (BSC) has not reached that point yet, but the UK’s biggest steelmaker said it is impossible to make steel profitably at certain times of the day.

There could be relief toward the end of the year as more supply of gas becomes available. Norway has signed off on increasing gas exports and more natural gas is expected to flow from Russia near the end of the year. For now though, consumers and investors should brace for more disruptions as energy prices continue to soar.