Black Friday 2011 Was A 2008 Redux So Don't Get Your Hopes Up

Includes: AMZN, BBY, M, WMT, XRT
by: Harold Fredrick

The financial media are abuzz about the retail sector’s impressive performance on this year’s Black Friday. They believe that it’s a harbinger of an economic recovery and an end-of-the-year market rally. I hate to be a Grinch, but sales on 2008’s Black Friday were pretty good, too. And we all know what happened to the economy and the market after that.

In 2008, retailers slashed prices by as much as 80% in an attempt to lure frightened consumers. Loss leaders were abundant, and the strategy did indeed draw Americans out of their bunkers. Incredibly, Black Friday 2008 saw a 7.2% increase in year-over-year sales. Right in the middle of the financial crisis. The financial media ate up the news, and the market skyrocketed 800 points the following week. But, reality soon set in. The rest of the holiday season was dismal for retailers, and the market closed the year having given up its post-Black Friday rally and more.

Flash forward to today. We’re once again on the heels of one of the biggest year-over-year Black Friday sales gains in history. This year’s sales were once again 7% more than last year’s, led by strong performances from Best Buy (NYSE:BBY), Macy's (NYSE:M), and Wal-Mart (NYSE:WMT). Online sales were twenty-five percent greater, led by Amazon (NASDAQ:AMZN). But, like 2008, this year’s impressive Black Friday performance was a result of retailers “pulling forward” demand by slashing prices at unprecedented levels, offering loss leaders, and spending gobs of money on marketing. As a matter of fact, marketing expenditures ballooned 50% this November. That’s more than they in did in November 2008.

There are more parallels between Black Friday 2008 and 2011. Shopping disorder and violence was prevalent in 2008 as the nation became panicked about the state of the economy. Competition for bargains led to a riot at a Wal-Mart on Long Island and hundreds of brawls and stampedes throughout the country. This year, for the first time, we saw a return to 2008 levels of shopping disorder. The Drudge Report linked to no less than 7 stories describing Black Friday brawls, stampedes, and even homicides. If it wasn’t clear already, this year’s Black Friday made abundantly clear that American consumers are as spooked about the economy as they were in 2008.

Short the inevitable post-Black Friday rally. Europe is about to melt down. And, for retail, it’s 2008 all over again.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.