Retail sales this year’s holiday season are expected to be the best since 2007. If this comes to pass, the stock market is likely to get a lift just after Thanksgiving weekend, along with the leading retail stocks.
Overall, US holiday sales are expected to rise 3.7 percent this year [to around $580 billion], according to BDO USA, based on responses from 100 Chief Marketing Officers at some of the country’s largest retailers. This is BDO’s most optimistic forecast since 2007, when a 5 percent increase in same-store sales was predicted.
The US is a consumer-driven economy. So it’s no surprise the stock market moves on post-Thanksgiving retail sales. Most major US retailers turn a profit only during the fourth quarter, as the ramp up in holiday sales put them in the black. Last year, for example, US stocks ended a major negative streak following a strong Thanksgiving sales weekend, as retailers reported $52 billion in sales, a 16 percent increase from 2010.
This year, retailers are unveiling Black Friday deals earlier than ever and using new attention-grabbing offerings to entice consumers. The retail winners this holiday season are likely to be: (1) discounters with early specials; and (2) a strong online presence.
Why? Hurricane Sandy pounded the Northeast in the first week of November, forcing some retail chains to shut stores. One way for retailers to make up for the lost business is through online sales, if they’re positioned well in that space.
Black Fridays anyway are increasingly happening online, as pajama-clad shoppers click their way to good cheer. So getting the online piece right is crucial for retailers as more spending shifts to that channel, especially given the popularity of mobile devices.
While online sales are only some 11 percent of total holiday sales, they’re growing much faster. US online sales this holiday season are estimated to rise 15 percent–to $68 billion–with the typical consumer spending $419 online, a 12 percent boost from 2011.
Worrisome economic news as Congress tries to avert the fiscal cliff is likely to put the focus on saving money. This could lead more shoppers to the discount stores, which are angling for position by starting this year’s holiday sales earlier than ever.
Three Ways to Shop
Wal-Mart Stores (NYSE: WMT), the world’s largest retailer, has said it will start off its holiday specials in the US at 8 pm Thanksgiving day, two hours earlier than last year. Wal-Mart’s closely watched electronics deals will also be available earlier, at 10 pm instead of midnight, featuring promotions such as a 60-inch Vizio LED TV for $688, a $310 discount.
Target Corp. (NYSE: TGT) will launch its specials at 9 pm. The big-box retailer said it will also offer additional door-busters beginning at 4 am on Black Friday, and Target RED cardholders will have early access to Black Friday sales items online. A big draw is likely to be Target’s partnership with Neiman Marcus, which will feature a collection of more than 50 gifts from 25 high-profile designers, including Jason Wu and Marc Jacobs.
Both Wal-Mart and Target are great at closing online sales. Target Corp., for instance, said it will match the prices of select online retailers. Last year, both the Wal-Mart and Target online stores sold out of many products within minutes after the sales started. This makes both discount chains likely winners again this holiday season.
Online giant Amazon.com (NASDAQ: AMZN) has already launched its Black Friday deals, getting an extra early start on attracting shoppers. The site will feature a “deal of the day,” limited-time, door-buster type specials and other savings in its key segments, including electronics, toys and clothing, from now through Black Friday weekend.
In true Amazon fashion, the company launched its Electronics Gift List, a lineup of slick, top-rated items, organized by category and gift recipient, so shoppers can easily determine what to buy for everyone on their list in one fell swoop.
While the holiday season will undoubtedly bring lumps of coal for some retailers, Wal-Mart, Target and Amazon are likely to be among the big winners this coming Black Friday.
Our 12-month price targets: Wal-Mart 83; Target 80; Amazon 270.
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Greg Pugh, an income-investing expert, publishes a newsletter called Investing for Monthly Income.
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