According to preliminary survey results released Sunday by the National Retail Federation, retail sales during the Thanksgiving weekend tumbled 11% to $50.9 billion from $57.4 billion during the same weekend last year. Executives are having a difficult time explaining the sharp drop off in retail sales (RTH), given similar aggressive strategies and promotions as previous years, but we think there are a few reasons for the hefty decline.
For one, the lure of the post-Thanksgiving “mad-rush” may be wearing off, and the emerging “negative” social stigma of those willing to shop (instead of resting with family) coupled with those who believe they are “being forced to work” during the holiday (see Walmart strike) without fair wages may be turning off customers. Retailers offering discounts for longer (for a week instead of just a weekend) may have also lessened the door-busting urge this Thanksgiving. Expectations for lower fuel prices and better job prospects may have also reduced the need to wait in line at dawn to save a few bucks. In our view, there wasn’t just one factor, but myriad drivers that likely led to the relatively large year-over-year spending decline.
In any case, the National Retail Federation believes sales for the entire holiday season will still advance north of 4%, accelerating from last year’s pace. Though the growth mark may be difficult to achieve, as most retailers will likely step up their discounting given the relatively disappointing Thanksgiving weekend showing (thereby reducing potential aggregate sales numbers), we should still see some growth. The lines at Walmart (WMT), Target (TGT), and Kohl’s (KSS), for example, were noteworthy, though we fully expect dollars spent on consumer electronics–from Apple (AAPL) iPhones and Google (GOOG, GOOGL) Android tablets to Sony (SNE) televisions and Hewlett-Packard (HPQ) notebooks–to gain against traditional department store clothes and items from JC Penney (JCP) and Sears (SHLD) this holiday. According to the Consumer Electronics Association, total tech spending is expected to improve 2.5% during the entire holiday season.
One bright spot thus far this holiday season, however, has been the ongoing strength of e-commerce. According to comScore (SCOR), Thanksgiving and Black Friday online buying was a “bananza.” Through November 30, the digital measurement company reported that $22.7 billion has been spent online, a robust 15% increase over last year’s corresponding holiday-season-to-date period. Black Friday and Thanksgiving Day online sales jumped 26% and 32%, respectively. One of the biggest holiday surprises, in our view, will be brick-and-mortar’s online sales strength, something we picked up during the third-quarter earnings season. Traffic on Best Buy’s (BBY) website, for example, was so prolific that it suffered some outages over the Black Friday weekend. Not only was the e-commerce strength notable from traditional retailers such as Walmart and Target, but we fully expect Amazon (AMZN) and eBay (EBAY) to showcase some strong year-over-year gains. Alibaba (BABA) already had a wonderful showing during Single’s Day in early November, and we expect strength to continue.
All in, the US consumer remains healthy, and the possibility of $2-per-gallon gasoline by Christmas could drive more spending this holiday season. We’re not reading too much into the weak Thanksgiving-weekend year-over-year retail sales comparison. As for winners this holiday season, anything related to Disney’s (DIS) animated film Frozen will likely be in short supply, and we expect Dividend Growth portfolio holding Hasbro (HAS) to be the long-term winner with that franchise. Upside in Apple sales should be expected. Happy shopping!