{"id":24494,"date":"2011-10-16T17:04:17","date_gmt":"2011-10-16T21:04:17","guid":{"rendered":"http:\/\/countingpips.com\/fx\/2011\/10\/16\/gap-shrinking-in-america-growing-in-china\/"},"modified":"2011-10-16T17:04:17","modified_gmt":"2011-10-16T21:04:17","slug":"gap-shrinking-in-america-growing-in-china","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/fx\/2011\/10\/16\/gap-shrinking-in-america-growing-in-china\/","title":{"rendered":"Gap: Shrinking in America, Growing in China"},"content":{"rendered":"

By The Sizemore Letter<\/a><\/p>\n

\"\"<\/a>For The Gap (NYSE: $<\/span>GPS<\/a>)<\/strong>, it is the best of times\u2026and it is the worst of times.\u00a0 The company just announced that it plans to close 189 of its namesake stores across the United States.\u00a0 This amounts to a full 21 percent of its American stores.<\/p>\n

At the same time, The Gap intends to triple<\/em> its presence in China by opening 45 new stores. This follows the company\u2019s broader strategy of shrinking its U.S. presence and looking for growth instead overseas.<\/p>\n

The Gap has faced sluggish sales in the United States for years.\u00a0 Some of this is due to the whims of fashion, but there is also a larger story to tell.\u00a0 Like so many other companies, The Gap has come to realize that the American consumer\u2014that seemingly unstoppable engine that has powered the global economy for decades\u2014is no longer firing on all cylinders.\u00a0 Growth, if it is to be found, will be found overseas.<\/p>\n

There are several factors at work, any one of which deserves an article\u2014or even a book\u2014of its own to explain.\u00a0 The first and most obvious is the state of the economy.\u00a0 While I do not see a \u201cdouble dip recession\u201d in the near future, I do believe that we are in the early years of a Japanese-style slow-motion depression.\u00a0<\/strong> Americans\u2014like the Japanese before them\u2014experienced a debt-fueled real estate bubble and consumption binge.\u00a0\u00a0 And Americans\u2014again like the Japanese before them\u2014can look forward to a prolonged hangover in which the debts are slowly paid down.<\/p>\n

The U.S. banks were quicker to write off their bad loans than their Japanese counterparts, but most are hardly eager to extend new loans.\u00a0 And even if they wanted to, it\u2019s not entirely clear they\u2019d have a lot of borrowers.<\/p>\n

Demographics are also decidedly negative.\u00a0<\/strong> The Baby Boomers, as the largest and richest generation in history, were the force behind the consumer boom of the past 30 years.\u00a0 But as the Boomers approach their retirement years, they are far more interested in saving rather than spending.<\/p>\n

Against this backdrop, it shouldn\u2019t be surprising that The Gap and other American companies are looking elsewhere for growth.<\/p>\n

In The Sizemore Investment Letter<\/em>, we also look abroad for growth.\u00a0 One of my favorite strategies is finding American and European companies with big exposure to emerging markets that have seen their stock prices sink due to concerns about their home markets.\u00a0 I call it \u201cEmerging Markets Lite.\u201d<\/strong><\/p>\n

The quintessential Emerging Market Lite investment is the Spanish telecommunications company Telef\u00f3nica (NYSE: $<\/span>TEF<\/a>)<\/strong>.\u00a0 Fears of a spreading European sovereign debt crisis have taken their toll on Spanish stocks.\u00a0 The broader Spanish Ibex index trades for 7 times earnings, as does Telef\u00f3nica.<\/p>\n

The problem with this is that Telef\u00f3nica is not really a Spanish stock.\u00a0 Only about a third of its revenues come from its home market, while fully 40 percent comes from the fast-growing markets of Latin America.<\/p>\n

Unlike their rich-world peers, emerging market consumers are not burdened with excessive debts.\u00a0 They have years or decades of spending growth ahead of them.\u00a0\u00a0 The Gap figured this out a long time ago and has restructured its business accordingly.<\/p>\n

I\u2019m not recommending you buy shares of The Gap today.\u00a0 But I do<\/em> recommend you invest in companies following The Gap\u2019s strategy.<\/p>\n

If you liked this article by Sizemore Insights<\/em>, you\u2019d probably enjoy The Sizemore Investment Letter<\/em>, our premium members-only newsletter. Click here<\/a> for more information.<\/p>\n","protected":false},"excerpt":{"rendered":"

By The Sizemore Letter For The Gap (NYSE: $GPS), it is the best of times\u2026and it is the worst of times.\u00a0 The company just announced that it plans to close 189 of its namesake stores across the United States.\u00a0 This amounts to a full 21 percent of its American stores. At the same time, The … <\/p>\n

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