Market News

Retailers Look To Holiday Season

Positive consumer sentiment to buoy year-end sales

A handful of brick-and-mortar retailers may be poised for some holiday cheer as the sector gets set to enter the important holiday shopping season. But market forces continue to bet against department stores and other retailers.

Investors aren’t waiting to find out whether or not retailers such as Macy’s Inc., J.C. Penney Company and Kohl’s Corp., along with major department stores like Wal-Mart Stores Inc. and Target Corp. will be able to reap enough in-store sales and revenues from their own online operations to offset the relentless incursion of online sales from Amazon.com.

The S&P 500 Department Stores Sub Industry Index has fallen by more than 26%, while Amazon’s stock has climbed by nearly 51% this year through November 17. As traditional retailing stocks have declined this year, more traders are using the popular strategy of going short these companies’ shares.

Short interest in U.S. retail stocks, in which a company’s shares are loaned to short sellers betting those shares will decline in value, was at its highest level in two years in October and the trend is expected to continue over the coming holiday rush. Across S&P 500 retailers, 5.6% of shares outstanding were on loan to short sellers as of the week ending November 17, compared to 2.7% of short interest for the overall S&P 500, according to this report.

The good news for retailers is that the consumer appears to be in good shape. In October, the Conference Board’s Consumer Confidence Index increased to its highest level in nearly 17 years to 125.9 in October, up from 120.6 the previous month. Home-price appreciation, stock market gains and healthy job prospects are all contributing to the positive sentiment.

Total holiday retail sales in November and December, excluding spending on automobiles, restaurants and gas, are expected to rise between 3.6% and 4.0%, according to the National Retail Federation (NRF).

And the NRF’s annual consumer survey conducted by Prosper Insights & Analytics notes that consumers say they plan to spend $967.13 this year, up from $935.58 in 2016. For the first time in the survey’s history, online is expected to be the most popular shopping destination this year, cited by 59% of consumers.

The survey also found that 57% of consumers will shop at a department store, 54% at a discount store, 46% at a grocery store/supermarket and 35% at a clothing or accessories store. Most online shoppers, 94%, will take advantage of free shipping and about half (49%) say they will order items on line with in-store pick up, according to the NRF survey.

Target will be offering free shipping to customers purchasing products on its Target.com site. The Minneapolis-based retailer also offers the convenience of online ordering with in-store pickup, which is becoming more popular among consumers, particularly for those looking to save time, or make frequent purchases of similar items. Best Buy, the electronics retailer, is also offering free shipping for the holiday season.

Given that part of the short bet is based on expectations that online purchases will outpace those sales made in stores, it’s not surprising that brick-and-mortar retailers continue to fight back. Third-quarter e-commerce sales rose by 15.5% compared to the same period a year ago, while total retail sales rose by 4.3%, according to the Commerce Department.

Retailers like Wal-Mart, Macy’s and Nordstrom have been tweaking their own online offerings to create a so-called omnichannel model – a one-two punch of physical stores with a thriving online presence. Fitch Ratings says in a recent report that it believes those three retailers are among the furthest along in developing their omnichannel model.

“The retailers best positioned to maintain or grow their market share are those with sufficient scale, cash flow generation and financial flexibility to invest in its business, an effective operating strategy and a right-sized physical footprint for its category,” Fitch said.

 

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Sources: 

https://www.pymnts.com/news/retail/2017/short-investors-flocking-to-retail-stocks/

https://www.conference-board.org/data/consumerconfidence.cfm

https://nrf.com/media/press-releases/nrf-forecasts-holiday-sales-increase-between-36-and-4-percent

https://nrf.com/media/press-releases/nrf-consumer-survey-points-busy-holiday-season-backs-economic-forecast-and

https://corporate.target.com/press/releases/2017/10/target-brings-joy-to-the-holiday-season-with-new-b

https://www.bloomberg.com/news/articles/2017-11-06/target-matches-best-buy-with-free-shipping-on-holiday-ordershttps://www.census.gov/retail/mrts/www/data/pdf/ec_current.pdf

https://www.fitchratings.com/site/pr/1032521

Links for Stock Data: 

http://bigcharts.marketwatch.com/historical/default.asp?symb=SP500-25503010&closeDate=11%2F17%2F16&x=34&y=22

http://bigcharts.marketwatch.com/historical/default.asp?symb=SP500-25503010&closeDate=11%2F17%2F17&x=38&y=16

http://bigcharts.marketwatch.com/historical/default.asp?symb=SP500-25503010&closeDate=12%2F30%2F16&x=22&y=24

http://bigcharts.marketwatch.com/historical/default.asp?symb=AMZN&closeDate=12%2F30%2F16&x=22&y=20

http://bigcharts.marketwatch.com/historical/default.asp?symb=AMZN&closeDate=11%2F17%2F17&x=44&y=18

 

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