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Investors are likely focused on yet another holiday shopping season and what is perceived as the busiest and most important shopping day of the year: Black Friday. The illusion created by the retail industry that Black Friday represents a date on the calendar as significant and worthy of attention as April 15th, given the tip of the hand by the industry and substantial economic challenges, is likely to provide a bit of blowback in the eyes of investors this holiday season.
A series of aggressive pre- holiday discounting, early store openings, 7.9% unemployment, slow income gains and with the lingering effects of Super Storm Sandy weighing heavily on consumers’ minds–and wallets– Black Friday is likely to not provide the boost to the sagging fortunes of retailers?
First, the growing number of Thanksgiving night store openings is a strong indication, retailers believe it necessary to extend, an already longer than traditional shopping season to meet already diminished expectations.
Wal-Mart $WMT raised the bar by opening its stores on Thanksgiving night at 8 pm. Gap Inc. ($GPS) will again reprise opening 1100 of its Old Navy, Gap and Banana Republic doors on Thanksgiving Day, with another 1500 units opening at midnight on Friday.
In addition, Toys R us $TOY, and New York’s Fifth Avenue Lord & Taylor ($HBC) Flagship, will break with tradition and open its doors from 10am-7 pm on Thursday Nov. 22nd. Clearly retailers smell blood in the water, and realize they will have to work fast and furious to get consumers to open their wallets this season.
But will shoppers bite? With a shaky economy and technology changing the way Americans shop Black Friday has become a shell of its former pre-Amazon $AMZN, pre-wireless self.
It is not well understood outside the a select circle of retail analysts that Black Friday is merely a ceremonial spike in traffic kicking off the Holiday Shopping season, instead of an inflection point in the annual fortunes of retailers like it was twenty years ago.
In its 2011 research, the NRF notes that while 28.7 million shoppers braved the glossy floors of the local mall on Black Friday, a whopping 122.9 million opened their laptops, ipads and iphones on Cyber Monday, begging the question. There is little to suggest that this behavior has changed, and the release of the I-Phone in September 2012 may have pulled consumption forward that would have been conducted in the traditional November-December period.
Second, to accurately assess the holiday shopping season, one must look at both November and December in combination. Holiday shopping tends to mirror an “Hour-glass” shape, with Black Friday serving as the aforementioned kick-off, Cyber Monday captures the fruit of all that window shopping, followed by a gentle lull, and then Super Saturday, the last Saturday before Christmas.
Although there are 61 days in the 2012 holiday season, this year there are an extra three days– 33 days in total between Thanksgiving and Christmas. As an added bonus, Christmas falls on a Tuesday, providing procrastinators with an extra weekend to finish up that shopping list. In addition, January should also be included in any retail analysis to account for any increase in retail sales incurred from Holiday gift cards and returns.
Third, Super Storm Sandy will likely have a noticeable impact on retail sales in general, and luxury goods in particular. Disposable income likely took a hit due to the nature of flooding in many areas that it rarely occurs, thus many are likely not to have flood insurance requiring Federal aid that may take some time to disburse.
Therefore, any discretionary outlays previously planned by an already strapped consumer may either be substituted for home improvement, or basic necessities, or delayed in general until later in the month of December.
During a historically weak economic recovery, one enduring trait in retail has been a bi-furcated market where high end luxury consumers and retailers thrive and value seekers and discount retailers prevail, (See $KORS, Hermes $RMS, Richemont $CFR.VX and $SKS vs: $TJX $KSS and $TGT), while retailers serving the middle class wither, ($JCP).
This year holiday season may be different. New York and New Jersey do account for 16% of overall US spending and luxury spending in New York City alone accounts for 20% of all luxury spending nationally.
Given that 40% of the households are likely responsible for 60% of overall consumption, even a modest pull-back among that cohort–luxury shoppers–may result in a noticeable impact on retail and luxury markets.
Retailers are already catching the “Sandy Flu” with SAKS $SKS the first to report an impact on its sales from the Super Storm’s surprise Halloween debut. Investors, should prepare for retailers to seize “Sandy” as an opportunity to temper holiday sales expectations and infect holiday retail bottom lines from luxury goods and apparel to footwear and electronics.
Investors are likely focused on yet another holiday shopping season and what is perceived as the busiest and most important shopping day of the year: Black Friday. The illusion created by the retail industry that Black Friday represents a date on the calendar as significant and worthy of attention as April 15th, given the tip of the hand by the industry and substantial economic challenges, is likely to provide a bit of blowback in the eyes of investors this holiday season.
