Libraries Boom as Banks Swoon

This post first appeared on Minyanville.

Recessions aren't bad for everyone, just ask your local librarian.

Even as Bank of America (BAC) and Citigroup (C), 2 of the biggest banks in the world and the erstwhile pillars of our economy fight for survival, the business of handing out information for free is booming.

The Wall Street Journal reports public libraries around the country are experiencing a spike in attendance, confounding skeptics who thought the Internet would render these time-honored community centers obsolete.

The recent increase in library use isn't necessarily surprising: Free Internet and other resource materials attract the unemployed and others long on time, short on income-producing work. Libraries often see attendance spikes during recessions. Library administrators, eager to retain their position as a public media source, have also begun carrying videogames and DVDs to attract younger patrons.

Libraries offer a quiet place to work, away from the clutter and distractions of home. My younger brother, for example, recently completed the challenging task of finding a job in an abysmal market. After a morning gym session, he schlepped his computer to the local library for a few hours of diligent job hunting. The change of scenery (let's face it, even hanging out at the library is better than living at home at 26) allowed him to focus on the task at hand, leaving the rest of the day to enjoy the freedom unemployment affords those deft enough to seize it.

The flood of new patrons is straining library staff, as already tight budgets are hacked away by municipalities' financial troubles. This is a trend we are only beginning to witness, as our economic woes chew into public funds at a time when coffers are running dry.

Our federal government is aggressively ramping up its support of our economy, asking public employees to implement a mountain of new programs and initiatives, despite the need to slim down payrolls in the face of weak tax revenues. Government is already notoriously lousy at implementing, well, anything, so to say the execution of President-Elect Obama's ambitious economic stimulus package will be challenging in the current environment is an understatement.

A return to the library is also evidence of the broader deflationary forces at work in this country, and indeed around the world. Libraries are the ultimate deflation trade: They're free. Consumers are trading down in their purchasing options - the only difference between choosing McDonald's over the Cheesecake Factory and playing Wii at the library instead of at home is the increased calorie count.

Amazon's Strong Sales Bucks Trend

This post first appeared on Minyanville.

As data pours in from the holiday shopping season, stories of tight purse strings and a general rejection of the extravagant abound.

But bucking the trend, Amazon.com (AMZN) reported strong sales and record buying activity. The world's biggest online retailer called the otherwise bleak environment it's "best ever." Still, online sales are expected to slow from the previous year for the first time ever.

On December 15, according to the Wall Street Journal, Amazon's customers snapped up items at a clip of nearly 73 per second, or 6.3 million for the day. That's the busiest the site has ever been.

Leading the record-breaking sales were Nintendo's (NTDOY) Wii video game consul, Samsung's 52-inch HD television and Apple's (AAPL) 8-gigabyte iPod Touch. In addition, Acer Inc.'s Aspire One netbook attracted buyers looking for cheap access to the Internet. The tiny laptop, with a screen that measures just 8.9 inches, sells for less than $500.

Amazon's strong results are in sharp contrast to most brick-and-mortar retailers, which rang up weak sales despite aggressive discounting. Consumers, hunting for bargains and reticent to brave harsh winter weather across much of the country, shunned malls, preferring instead to shop from the comfort of home.

The site's relative success is evidence that, even during recession, the cream of the corporate crop can still thrive. Economic activity doesn't grind to a halt just because Apocalyptic headlines seem to be without end.

Instead, downturns weed out the weak hands, building a stronger foundation for future growth.

Chiquita Slips on High Costs

This post first appeared on Minyanville.

Food-makers are struggling to maintain margins as persistently high commodity prices pressure already slim margins. Some firms are even shrinking boxes to sustain profitability. Unfortunately for Chiquita Brands (CQB), it can't sell half bananas.

Yesterday, the purveyor of bananas and other fresh fruit warned investors of an ugly third quarter. The company said higher input costs, bad weather in Latin America and weak seasonal demand for fruit will push it to a loss for the quarter ending July 31st. Shares traded down sharply, off 28%. Competitor Fresh Del Monte Produce (FDP) also took a beating, tumbling nearly 16%.

Chiquita said that although its banana prices are steadily rising, tepid demand and thinner margins are eating into profits. The company expects to return to profitability later in the year, indicating an expectation that higher fertilizer and fuel costs will subside and more normal buying patterns will return.

In an effort to fend off skyrocketing commodity prices, food makers like Chiquita are being forced to pass higher input costs along to consumers. Professor Depew notes some firms are resorting to smaller sizes in an attempt to bring their offerings more in line with shrinking demand. General Mills (GIS) is reducing cereal box sizes, Wrigley (WWY) is dropping the number of sticks in each package of gum and Coca-Cola (KO) and Pepsi (PEP) are ditching the 20-ounce soda in favor of the smaller, 16-ounce size.

Other companies, like Kraft (KFT) and Sara Lee (SLE) are simply raising prices.

Fruits and vegetables aren't what one would normally consider discretionary purchases. Unlike plasma TVs and Nintendo Wiis (NTDOY), humans don't survive very well without vitamins and minerals. But as consumers trade down and opt for more affordable food items, nutrition often suffers. If this trend continues, we could see our already abysmal diet slide further into the deep fryer.

Gamers Open Wallets, Readers Stay On Couch

This post first appeared on Minyanville.

Barnes & Noble (BKS) and GameStop (GME) are headed in opposite directions. Heavily dependent on shoppers' waning discretionary dollars, the fate of the two retailers lies squarely in consumers' fickle hands.

According to The Wall Street Journal, Barnes & Noble reported a $2.2 million loss for the quarter ending May 3rd, including an $8.3 million charge stemming from a legal battle in California over the collection of sales tax online. The bookseller also lowered sales estimates for fiscal 2008, but reiterated its view that earnings per share will fall in line with its previous forecast.

The Journal reported earlier this week that Barnes & Noble may be looking to buy Borders Group (BGP), which put itself on the block in March. Regulators are likely to scoff at a merger of the two companies, however, as it would create a book retailer with more than 30% market share.

But pricing power in the world of print may not matter; who reads books these days anyway? Certainly no one between the ages of 12 and 25 - they're too busy playing Grand Theft Auto IV (TTWO) or Guitar Hero (ATVI).

That's good news for GameStop. The purveyor of new and used video games saw profits double from a year ago amid strong demand for new titles like the aforementioned Grand Theft Auto IV and Rock Band. Despite a dip in margins, same-store sales jumped 27% - stronger than the company's own estimates. New video game sales increased 72% from a year prior, while used game sales grew by 27%. GameStop guided earnings for the second quarter at the high end of analysts' estimates.

During tough economic times, consumer preferences play a more significant role in which retailers stay in the black and which ones fold. Investors should expect niche players like GameStop, well positioned despite a sluggish economy, to outperform catch-all electronics stores like Best Buy (BBY).

In contrast to fad products like Crocs (CROX) and Under Armor (UA), video games represent a longer-term trend toward a more interactive entertainment experience. The popularity of games like Guitar Hero and Nintendo's (NTDOY) Wii Fit that force users to get off the couch is evidence of this shift.

And unlike TVs and computers that have relative shelf lives, video games "must" be replaced every six to twelve months when a new release or edition comes out. Final Fantasy, a popular role playing series for the Sony (SNY) PlayStation, is already up to its 13th iteration.

Gamers are a loyal bunch. The ability to buy used games for a fraction of the cost of new ones, even during tough economic times, means they can keep on playing.