Retail Sales Watch: Consumers Content to Wait

Dec.16.09 | About: Best Buy (BBY)

The National Retail Federation reported that according to a recent survey only 46.7% of shoppers have completed their holiday gift shopping so far. This is even lower than last year’s 47.1%, and the lowest percentage at this point in the season since 2004. Consider there is little more than one week before Christmas, in a shopping season that lasts nearly a full month, yet the NRF claims less than half of gift shopping has taken place. Clearly, they continue to hope that the final days of the season will be robust.

Sales were exceptionally weak a year ago, so anything not substantially better than those results will surely disappoint and possibly lead to layoffs and store closings. This makes one wonder if consumers are holding back in anticipation that retailers will be forced to clear out excess inventory at tremendous mark downs after the holiday. The last Saturday before Christmas is now being called “Super Saturday” and should be a deal seekers paradise. Consumers may be more strapped for cash than originally thought, and more concerned about the economy and spreading out purchases. Expect retailers to pull out all the stops in the final week before Christmas in order to liquidate inventory, so last minute shoppers could be treated to increased promotions.

Also in the NRF announcement, the report tells us that fewer consumers are using credit to make purchases. This cash buying is likely a combination of an overall contraction of consumer credit as well as consumers feeling uncertain about their financial future.

“As expected, shoppers have shown tremendous restraint in buying gifts with the money they already have, not the money they hope to have,” said Phil Rist, Executive Vice President, Strategic Initiatives, BIGresearch. “Relying less on credit for holiday purchases will help consumers feel more comfortable about their personal finances again and may make them more willing to spend in the future.” — NCF Press Release 12/16/2009

Surely, the NRF hopes that the recent fiscal third-quarter results from Best Buy (NYSE:BBY) are not a microcosm for the entire retail industry. Best Buy reported earnings per share were 23% better than analysts had predicted, but the largest electronics retailer issued a warning that holiday sales may not be as strong as hoped. The market sold off more than 8% on that outlook, as electronics and gadgets are always a popular gift theme. Best Buy seems to be saying that they are not anticipating a major rush into Christmas.

This data reaffirms our skepticism that the holiday shopping will justify the run-up in retail stocks. Today’s new data would seem to be another troubling bit as consumers are less confident early in the season. It will take a reversal in this trend in the final days before Christmas in order to show the sort of retail gains that we believe have already been priced in.

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