Quick Thoughts on Black Friday Retail

Some quick thoughts on retail sales over this past Black Friday shopping weekend:

Consumers Catching Up: the YoY increase in Black Friday sales needs to be juxtaposed against the fact that the sharp decline in spending from the previous 3-4 months, in other words a significant % of the sales come from people using deep holiday discounts to catch up on spending they had put off in previous months.

Just think about it - many stores were offering deep discounts on rather pedestrian items like cleaning supplies, food and other basic household products in addition to the usual fare like Blu-Ray players, suggesting that they were looking to make-up for sales they lost out on in previous months.

Margin Pressure: when you look at the magnitude of this holiday season's deep discounts (especially on top of last year's) it's rather obvious that retailers had to severely squeeze their margins to make sales, suggesting that they generated fewer overall profits this past weekend in spite of the increase in sales.

Furthermore the fact that consumers were able to buy more gifts per dollar this past weekend (on top of general economic worries), could mean that many of them are already finished with their holiday shopping for the year.

All that being said we're only a couple of days into the holiday season so it's probably best to wait until the final numbers and earnings come out in January prior to making any definitive pronouncements, as at the moment we're really dealing with a rather limited data set. Until then I would advise people to consider consumer behavior and "revenue quality" when analyzing retail sales, especially when dealing with some of the overly rosy media coverage on consumer sales.

You can read more here ((FT)) discussing the smaller crowds, another article discussing the rise in retail sales here (FT), and an article from the WSJ discussing evidence for a gloomy holiday shopping season here. Probably the most important thing in the WSJ article to make note of is the fact that many retailers started liquidating inventory before the holiday shopping season even started.

Disclosure: at the time of publishing the author didn't own a position in any of the companies mentioned in this article; the ideas expressed are solely the opinions of the author and shouldn't be viewed as financial or investment advice.

Comments

[8 Alpha-Zulu:]

As ususal Markham, you're dead on. Its one thing to get folks into the stores and completely another to actually profit from it. The heavy pre-season mark-downs and early liquidations indicate (to me) that the positively correlated decrease in margins to the retailer will be very taxing this season; but we'll have to wait to see. The buyers for many of the big guys were super stingey earlier this fall when placing orders to stock for holiday.

interestingly, I think that the cash strapped, scared to death average consumer is bored to tears with little excess pocket change to go to dinner, travel, entertain themselves, etc... and he/"she" was in the mall over the holiday to have something to do in an animated venue purportedly for free. The presence of all these credit cards milling around Taubman, Simon & General Growth's malls translated into higher than expected traffic and a moderate increase in yoy topline for many. It would be interesting to see yoy credit card v. cash transaction runs for the retailers.
We'll see. regrettably, my model(s) tell me that the recent yoy increases are an anomaly and we're going to have a very very blue January & February as the rooster comes home to roost.

-8Alpha

2008 Dec 03 12:29 PM