Is Brian Sozzi Seeing Zombies Again?

Brian Sozzi popped in to the CNBC studios Thursday afternoon to share his thoughts on the retail market, consumer spending, and, believe it or not, zombies (sort of). "The theory of the zombie consumer [is that he/she] just works to pay for needs, not many wants," Sozzi said. He noted that this was showing up most in increases in dollar store sales, and that this phenomenon occurred most often in households earning less than $60,000. What does the data show? Dollar stores, including industry standards such as Dollar General DG, Dollar Tree DLTR, and Family Dollar FDO, have all seen share price increases over the past six months. This points to exactly what Sozzi detailed — a consumer base that is barely getting by and spending its limited resources on needs, at the cheapest prices available, wherever possible. This leads into overall consumer volatility, which has been going wild of late. Sozzi explained that this was not a good sign for consumers. "If you strip down sales numbers, there are signs of pulling back," he said. A pullback in consumer spending at this point would indicate underlying unease in market conditions from consumers. Sozzi has been a proponent of this caution for some time now, as CNBC highlighted in some of his previous statements. "[There] continue to be more mixed reads on the state of the U.S. consumer, more views, than there are alcohols in a Long Island Iced Tea." "Be mindful and careful of volatility within retail, this is characteristic of boom and bust cycles." Sozzi explained that consumers had typically "pulled back" when economic pressure was on them and economic conditions were not in their favor. It is also necessary to now "gauge consumer receptiveness to high prices." Retail depends more heavily on consumer behavior due the industry's dependence on continued product turnover to create revenue and profits. This rapid turnover makes retail especially sensitive to reduced spending. Translation? Retail may not be the best bet for an uncertain economy. The trend carries over even into commodities and otherwise "necessary goods", like food. Look at the effect of gas prices on spending behavior, for example. "Oil prices have climbed back up; gas prices are down 10 percent from the beginning of the year, but this has not yet translated into retail sales. Consumers are still concerned about the price of groceries." Target TGT was one retailer that Sozzi specifically mentioned. "Target, we need to be mindful there too. They've been disappointing the Street. They've put more groceries in the aisles, but they're losing share [and] struggling to post sales growth." In spite of a nearly three dollar increase in share price today, Target has mainly seen a decline in price over the last six months. ACTION ITEMS:

Bullish:

• Dollar stores appear to be posting strong results, and may continue share price growth over the coming months.

Bearish

• Sozzi may be right about coming disappointments in retail during back to school sales. Shareholders may react negatively to below average revenues during this time.

• Sozzi's comments describe a weakening consumer that might be weaker than the market thinks. There may be downward adjustments in revenue across retail and services sectors that reflect weakening consumer spending.

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