Strengthening U.S. Economy Lifts Holiday Sales

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by: Janus Henderson Investors

By Joshua Cummings

Josh Cummings, Research Analyst and Consumer Sector Lead, provides an update on the holiday sales season thus far. He explains that sales have been better than expected to-date, even for brick-and-mortar retailers. He also explores the continuing trend toward on-line sales, underscoring the importance of mobile sales in the 2017 cycle and creating a divide within the digital divide.

With the acceleration we have seen in general macro data here in the United States, we have seen slightly better-than-expected retail sales. And that goes for brick and mortar and e-commerce, as well.

Generally speaking, expectations were pretty low for the brick-and-mortar retailers headed into this fourth quarter and the data we have so far suggests that October was pretty good and November is even better than October. And I think that is a large reason, a big reason, why you have seen the retailers rally here in the recent weeks.

Anecdotally it would appear that strength in sales from Black Friday have carried through to the rest of the month

One of the biggest drivers for retailers is really just the general economy and so as macro data has improved over the past several months, we have seen it directly translate to sales growth for the retailers. And so to the extent that the economy continues to remain strong, we see strong GDP growth, strong wage growth, etc., there is no reason to believe that the retailers can't continue to do reasonably well.

The National Retail Federation recently issued a forecast of 3.5% to 4% for this holiday season. Retailers have had year after year of very promotional holiday periods and I think they are starting to learn their lesson and they have entered this year in a relatively lean inventory position. So at least based on what we know now, it looks like the sales growth of 3.5% to 4% may not necessarily come at the expense of margins. Obviously, we are going to have to wait to see the fourth quarter earnings reports in February from the retailers.

The recent data points we have seen suggest e-commerce is growing at about a mid-teens rate, which is consistent with prior quarters in really the last two or three years. The big trend within e-commerce is really the rapid shift to mobile. So we are seeing outsized growth in e-commerce transactions either being initiated or initiated and completed on mobile devices.

So within that mid-teen growth rate, mobile is growing at a multiple of that. So it is taking share within e-commerce, which in and of itself is taking share of retail sales.

For retailers, it is incumbent upon them, not just to have a good e-commerce site, a website that works well on a desktop, but it really has got to be optimized and configured to work well on phones.

So in that sense, we are seeing a digital divide within the digital divide.

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