Walmart Has a Black Friday

Black Friday, the Friday after Thanksgiving in the United States, is supposed to mark the beginning of the traditional holiday shopping season. It is also a period when retailers are supposed to be in the black – turning a profit. However, while retailers appear to have had a better-than-feared performance during the extended holiday weekend, it doesn’t look like sentiment has improved much. This is likely the result of aggressive price discounting – something that isn’t very encouraging given the increased threat of deflation these days.

Credit Suisse analyst Paul Lejuez said anecdotal evidence suggests that retailers offering the best deals were the most crowded and those with no promotions were relatively empty. And while malls may have been crowded, people weren’t necessarily making purchases.

Many retailers have already indicated that the first part of November was worse than dismal levels in October, which could be particularly bad for luxury names like Nordstrom Inc. (JWN) and Saks Inc. (SKS). Warmer weather than last year may have also further hurt retailers’ ability to sell cold weather merchandise, the analyst said in a report.

Retailers will report monthly numbers on Thursday and Credit Suisse expects many to provide fourth quarter guidance – some for the first time. And while Black Friday weekend provides insight into holiday trends, December is the biggest month of the quarter at between 45% and 55%. As a result, Mr. Lejeuz said, “Any guidance provided on retail sales day (Thursday) will have limited visibility.”

Unfortunately, even a great Black Friday won’t be enough to save the month of November, said J.P. Morgan analyst Charles Grom. Nonetheless, he thinks investors are looking to get more constructive on retail stocks and adopt a Shakespeare-like “All’s Well That Ends Well” approach.

Favourable weather and lower gas prices could set the stage for a better-than-expected Christmas period, Mr. Grom told clients. However, the uncertainty remains elevated, he added, so a balanced approach with an overweight position in retailers with strong fundamentals today such as Wal-Mart Stores Inc. (WMT), BJ’s Wholesale Club Inc. (BJ) and Dollar Tree Inc. (DLTR) is recommended.

The analyst’s team checked stores from Atlanta to Connecticut and found shopping centres and malls with mid and lower-prices retailers were busier than higher-end locations.

Mr. Grom said:

Although customers certainly woke up early and hit retail ready for discounts, we saw customers more willing to put non-doorbuster items into their carts at these value-centric retailers, with those less promotional or those with perceived higher prices drawing less share of wallet.

His team even noticed fewer cups of Starbucks (SBUX) in shoppers’ hands, suggesting that people are thinking more about what they need versus what they want. As a result, retailers serving up a strong value offering are expected to come out on top this season.

But Wal-Mart is expected to be the big winner in November. J.P. Morgan said every store it visited saw traffic up compared to last year, while most shoppers had bigger baskets and some stores had lines to get in two hours before opening on Friday.

Electronics was the first product in the cart and it was filled better than at other retailers we visited. TVs were being carried out by customers like loaves of bread.

Comments

[billddrummer:]

Good article.

Another thing that was happening during the Black Friday frenzy is that consumers were looking not just for doorbusters, but also for other deals within the stores. Retailers in this area (Reno NV) responded by having unadvertised manager's specials bulk-stacked in the aisles, salespeople line-selling accessories to customers waiting at register lines, and dedicating 'express checkout' for people looking to purchase only a couple of things.

It seemed to work in some stores, not so well in others.

The CE outlets seemed to do well that day, although no one really knows whether any profits were generated.

the rest of the season will tell whether there will be additional discounts as the shopping days fall away, and inventory doesn't.

2008 Dec 02 02:01 PM