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VERSACE: Follow the shopping bags
Question of the Day
Today is Black Friday, the day after Thanksgiving that kicks off the traditional Christmas shopping season, and as such refers to the beginning of the period in which retailers go from posting losses (being in the red) to making profits (being in the black). Will consumers shop in order to give gifts this holiday season? More likely than not, but how many gifts they will give and where they will buy them are all good questions.
In terms of our money and actual or potential investments, it behooves us to pay attention and see whether we can determine which retailers and products are poised to benefit this holiday season.
It's been rather easy to see or hear all about Black Friday sales - Kohl's is opening at 4 a.m., Target is opening at 5 a.m., and Wal-Mart is offering "Incredible In-Store Specials" from 5 a.m. to 11 a.m. These are just a few of the Black Friday programs but rest assured other retailers such as Macy's, Nordstrom, Best Buy, Apple and others are offering "special holiday" hours, sales and promotions. While these extended hours and special sales have been the norm now for the past few years, they are rather important this year. Consumers' financial health is poor and thus retailers need as much holiday spending as they can get.
According to recent Gallup polls, Americans' estimate of the total amount they will spend on Christmas gifts this year has fallen precipitously over the past month, sending the figure back to last year's record lows. Americans' average Christmas spending prediction is now $638. This is marginally above the November 2008 level, one of the worst holiday retail seasons in recent memory. As a backdrop, last year's holiday retail spending fell 3.4 percent. Moreover, these findings are from Gallup's second holiday spending forecast and are down measurably from the first. Last month, Americans predicted they would spend an average $740 on gifts, a figure that offered more hope for holiday retailers. The most recent findings also reveal that while 57 percent now say they will spend the same amount on gifts as they did last Christmas, 34 percent indicate they will be spending less on gifts this year. By comparison, the National Retail Federation forecasts that this year's holiday sales will decline 1 percent, to $437.6 billion.
Despite the recent bump up in personal spending for October, it's not that hard to comprehend why consumers remain tight with their spending dollars. Even with the modest rise in October personal spending as reported earlier this week, the personal spending remains significantly below levels of the past 12 years. High unemployment rates and the current job crisis are easy to finger as both direct and indirect causes behind tepid consumer spending. Digging slightly deeper, we see the number of bankruptcies has jumped significantly in 2009. The American Bankruptcy Institute said 388,485 bankruptcies were filed during the last quarter, compared with 292,291 filed during the same period in 2008. Bankruptcy filings for the first nine months of the year are up 35 percent to 1,100,035 vs. the 841,496 filed for the same period in 2008 and a total of 1,117,771 for all of last year.
Another cause is that, despite the rebound in the stock market year to date (the S&P 500 is up 23 percent on that basis as I write this), the market is still 29 percent below its mid-October 2007 peak. By that measure, consumers still have lost close to one-third of their savings, retirement and other accounts that had significant stock market exposure. It should come as little surprise, then, that one in six Americans are saying that low wages and a lack of money are the number one financial problem facing their families today.
At the same time, merchants are scrambling to stock their shelves in preparation for the make-or-break holiday season. In normal times, retailers tend to borrow money in order to buy holiday inventory with the aim of repaying those borrowings once they have collected on their accounts receivable during and after the holiday shopping season. This year, however, is likely to be far more challenging as credit, particularly for small businesses, has dried up. Add to this the previously mentioned weak personal-spending trend, and business owners are faced with a cash crunch that could leave them challenged when it comes to stocking their shelves with products that consumers may want to buy this year.
As Bill Dunkelberg, chief economist of the National Federation of Independent Businesses, said, "The real concern is, can you sell stuff?"
With that in mind, the way I will determine which retailers will be successful and what products that will be bought is rather simple. Count the bags.
By counting the bags, I mean simply that - as you walk around the shopping centers, the malls and elsewhere keep an eye on which store-brand bags you are seeing people carry around and how frequent you see them. Not exactly rocket science, I admit, but as I have often shared here and elsewhere, investing is not rocket science. A healthy dose of good common sense mixed with keeping our eyes and ears open as to what is going on around us serves investors rather well.
So count those bags as you hunt down your holiday shopping bargains this year and if you see any stalwarts, you may want to see what people are buying. If it's compelling, you may want to sharpen your pencil on the company and its stock.
Chris Versace is director of research at Think 20/20 LLC, an independent research and corporate access firm based in Reston. He can be reached at email@example.com. At the time of publication, Mr. Versace had no positions in companies mentioned. However, positions can change.
About the Author
Chris Versace, the “Thematic Investor,” is the director of research at Think 20/20, an independent equity research and corporate access firm located in the Washington, D.C. area. Before Think 20/20, Mr. Versace was the portfolio manager of Agile Capital Management (ACM), a thematically driven alternative investment fund. The groundwork for ACM was laid during Mr. Versace’s tenure as senior vice president of equity ...
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