With the economic backdrop steadily improving, albeit at a very slow pace, the outlook for the holiday shopping season has brightened.
According to NRF's 2010 Holiday Consumer Intentions and Actions Survey, conducted by BIGresearch, U.S. consumers plan to spend an average of $688.8 on holiday-related shopping, a slight rise from last year's $681.8. Given the macro challenges, consumers now prefer price over fit and merchandise quality as major determinants for their shopping choices.
Across all income levels, all respondents ranked price as the most important reason for store choices, significantly ahead of other criteria. Therefore, retailers are offering right-trend and well-designed assortments without compromising quality in order to improve merchandise margins, in addition to compelling price points.
Dramatic November Comparables
According to the International Council of Shopping Centers, for the month of November 2010 same-store sales surged 5.8% over last year, the largest monthly increase since February 2004. Strong growth was witnessed across all categories, especially in the specialty apparel and department stores, thanks to the retailers who increased store traffic by offering attractive discounts that lured more and more customers to shop before time and repeatedly. The overall holiday season sales are expected to rise by about 2.3% in 2010, according to NRF.
Some retail chains like Abercrombie & Fitch Co. (ANF), Bed Bath & Beyond Inc. (BBBY), J.C. Penney Company Inc. (JCP), Kohl's Corp. (KSS), Target Corp. (TGT) and many others have reported robust comparables for the month of November 2010.
The key reasons for their strong performances appear to be their continuous efforts to offer innovative products and value pricing, rapidly respond to the buying habits of the consumers and strengthen loyalties despite price-motivated fickleness. In addition, some of these retailers started offering discounts and attractive deals far ahead of "Black Friday."
Discounted Shopping
As a result of the limited availability of consumer credit and the fall in wages and personal wealth in a weak labor market environment, U.S. consumers have been hesitant about discretionary spending and have been looking for more discount shopping opportunities. According to the survey by NRF, one most important factor impacting shopping this holiday season, are price discounts (41.8% of people surveyed) or everyday low prices (12.7%).
High unemployment rates, a falling housing market index and lower consumer spending pattern compelled many retailers to become more promotional, and offer heavy discounts and attractive merchandise at the same time to lure shoppers to the malls.
Retailers like Wal-Mart Stores Inc. (WMT) and Target have announced free shipping to homes on most of their holiday items in order to entice budget- conscious customers.
Online Sales
This holiday season has showed impressive growth in online sales. Black Friday recorded online sales growth of 15.9% versus last year, while spending per order increased by 12.1%, according to Coremetrics.
U.S. customers have undergone a fundamental change in how they spend their money. They are primarily focusing on value-for-money items throughout the holiday shopping season, especially traditional and essential gifts that are popular. As a result, traditional items such as toys, electronic goods and clothing are at the top of holiday shopping lists, and most consumers intend to spend more on gift cards.
Smartphones
Smartphones have also created an important place for themselves in the world of shopping. Today with improving shopping applications, most of the retailers are focusing on smartphones as an effective sales channel. Therefore, consumers are widely using smartphones as part of their shopping research and purchasing experience. As a result of which mobile sales on eBay (EBAY) on Black Friday increased twice compared to the prior-year period.
Cost of Living Index
The consumer-price index increased 0.2% for October 2010. However, the unemployment rate remained unchanged at about 9.6%.
In addition to the improving macro backdrop, the easy comparisons from the prior year should also put this year's performance in a better light. The sustainability of the momentum, however, will rest squarely on the continued economic recovery and improvement in the job market. This will ultimately boost consumer confidence and disarm prudent discretionary spending.
Retail is basically a volume game. Going forward, with the competition intensifying and the costs scaling up, the players who are able to cater to the needs of consumers, grow volumes by ensuring foot traffic, cut costs and weather competition will have the final advantage.
OPPORTUNITIES
Many retail chains benefited from attractive deals and offers for the Thanksgiving and Black Friday and remain well positioned for the rest of the holiday shopping season. In this group, we prefer the following companies:
Abercrombie & Fitch Co. (ANF), a specialty retailer of casual apparel, reported solid sales for the four-week period ended November 27, 2010. After a smart increase of 12% in September, the comparables moderated to 2.0% growth in October before recording a whopping increase of 22.0% in November 2010. Total sales for November shot up 32.0% to $318.9 million from $241.2 million in the same month last year, following a 13.0% year-over-year growth in October 2010.
Nordstrom Inc's (JWN) same-store sales for November 2010 increased 5.1% compared with the same month last year. Total retail sales were $815 million, up 8.8% from $749 million in November 2009. The company reported an increase in same-store sales of 8.2% year to date. Total retail sales improved 13.0% to $7.31 billion from $6.47 billion for the same period in fiscal 2009.Based on same-store sales growth of 6%, Nordstrom also expects fiscal 2010 earnings in a range of $2.60 to $2.65 per share.
Limited Brands Inc. (LTD), a specialty retailer of women's intimate and other apparel, beauty and personal care products recently posted a 10% increase in comparable-store sales for November 2010, following a 9% increase registered in October 2010 and reflecting a sharp improvement from a growth of 3% in October 2009. Limited Brands now expects December comparable-store sales to rise in the low-single digits.
WEAKNESSES
Generally, retail companies have been under pressure in the recent downturn due to high inventory, lack of consumer spending due to weak disposable incomes and rising commodity prices. These companies have still not been able to offset these difficulties and are reporting flat or declining sales trends.
Hot Topic Inc. (HOTT), a shopping mall-based specialty retailer, remained in the red with same-store sales sliding 2.1% in November 2010. This marked the 19th consecutive month of falling same-store sales.
However, the drop in same-store sales narrowed considerably from a decline of 11.7% witnessed in the prior-year month. Hot Topic recorded a 1.8% drop in total sales, for the month, grossing $54.3 million. The company has been continuously reporting negative results attributable to the sluggish economic conditions.
American Eagle Outfitters Inc.'s (AEO) After a 2.0% decrease in the year-earlier period comparable-store sales for November came in flat. Total sales for the four weeks ended November 27, 2010, upped 2% to $272 million from $266 million for the four weeks ended November 28, 2009.
The Thanksgiving weekend boosted sales in the reported month thereby compensating for the softness observed during the rest of the month. Additionally, American Eagle pointed out that inventory management initiatives are working well and customers are reacting positively to the merchandise offering.
AMER EAGLE OUTF (AEO): Free Stock Analysis Report
ABERCROMBIE (ANF): Free Stock Analysis Report
BED BATH&BEYOND (BBBY): Free Stock Analysis Report
EBAY INC (EBAY): Free Stock Analysis Report
HOT TOPIC INC (HOTT): Free Stock Analysis Report
PENNEY (JC) INC (JCP): Free Stock Analysis Report
NORDSTROM INC (JWN): Free Stock Analysis Report
KOHLS CORP (KSS): Free Stock Analysis Report
LIMITED INC (LTD): Free Stock Analysis Report
TARGET CORP (TGT): Free Stock Analysis Report
WAL-MART STORES (WMT): Free Stock Analysis Report
Zacks Investment Research
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Across all income levels, all respondents ranked price as the most important reason for store choices, significantly ahead of other criteria. Therefore, retailers are offering right-trend and well-designed assortments without compromising quality in order to improve merchandise margins, in addition to compelling price points.
Dramatic November Comparables
According to the International Council of Shopping Centers, for the month of November 2010 same-store sales surged 5.8% over last year, the largest monthly increase since February 2004. Strong growth was witnessed across all categories, especially in the specialty apparel and department stores, thanks to the retailers who increased store traffic by offering attractive discounts that lured more and more customers to shop before time and repeatedly. The overall holiday season sales are expected to rise by about 2.3% in 2010, according to NRF.
Some retail chains like Abercrombie & Fitch Co. (ANF), Bed Bath & Beyond Inc. (BBBY), J.C. Penney Company Inc. (JCP), Kohl's Corp. (KSS), Target Corp. (TGT) and many others have reported robust comparables for the month of November 2010.
The key reasons for their strong performances appear to be their continuous efforts to offer innovative products and value pricing, rapidly respond to the buying habits of the consumers and strengthen loyalties despite price-motivated fickleness. In addition, some of these retailers started offering discounts and attractive deals far ahead of "Black Friday."
Discounted Shopping
As a result of the limited availability of consumer credit and the fall in wages and personal wealth in a weak labor market environment, U.S. consumers have been hesitant about discretionary spending and have been looking for more discount shopping opportunities. According to the survey by NRF, one most important factor impacting shopping this holiday season, are price discounts (41.8% of people surveyed) or everyday low prices (12.7%).
High unemployment rates, a falling housing market index and lower consumer spending pattern compelled many retailers to become more promotional, and offer heavy discounts and attractive merchandise at the same time to lure shoppers to the malls.
Retailers like Wal-Mart Stores Inc. (WMT) and Target have announced free shipping to homes on most of their holiday items in order to entice budget- conscious customers.
Online Sales
This holiday season has showed impressive growth in online sales. Black Friday recorded online sales growth of 15.9% versus last year, while spending per order increased by 12.1%, according to Coremetrics.
U.S. customers have undergone a fundamental change in how they spend their money. They are primarily focusing on value-for-money items throughout the holiday shopping season, especially traditional and essential gifts that are popular. As a result, traditional items such as toys, electronic goods and clothing are at the top of holiday shopping lists, and most consumers intend to spend more on gift cards.
Smartphones
Smartphones have also created an important place for themselves in the world of shopping. Today with improving shopping applications, most of the retailers are focusing on smartphones as an effective sales channel. Therefore, consumers are widely using smartphones as part of their shopping research and purchasing experience. As a result of which mobile sales on eBay (EBAY) on Black Friday increased twice compared to the prior-year period.
Cost of Living Index
The consumer-price index increased 0.2% for October 2010. However, the unemployment rate remained unchanged at about 9.6%.
In addition to the improving macro backdrop, the easy comparisons from the prior year should also put this year's performance in a better light. The sustainability of the momentum, however, will rest squarely on the continued economic recovery and improvement in the job market. This will ultimately boost consumer confidence and disarm prudent discretionary spending.
Retail is basically a volume game. Going forward, with the competition intensifying and the costs scaling up, the players who are able to cater to the needs of consumers, grow volumes by ensuring foot traffic, cut costs and weather competition will have the final advantage.
OPPORTUNITIES
Many retail chains benefited from attractive deals and offers for the Thanksgiving and Black Friday and remain well positioned for the rest of the holiday shopping season. In this group, we prefer the following companies:
Abercrombie & Fitch Co. (ANF), a specialty retailer of casual apparel, reported solid sales for the four-week period ended November 27, 2010. After a smart increase of 12% in September, the comparables moderated to 2.0% growth in October before recording a whopping increase of 22.0% in November 2010. Total sales for November shot up 32.0% to $318.9 million from $241.2 million in the same month last year, following a 13.0% year-over-year growth in October 2010.
Nordstrom Inc's (JWN) same-store sales for November 2010 increased 5.1% compared with the same month last year. Total retail sales were $815 million, up 8.8% from $749 million in November 2009. The company reported an increase in same-store sales of 8.2% year to date. Total retail sales improved 13.0% to $7.31 billion from $6.47 billion for the same period in fiscal 2009.Based on same-store sales growth of 6%, Nordstrom also expects fiscal 2010 earnings in a range of $2.60 to $2.65 per share.
Limited Brands Inc. (LTD), a specialty retailer of women's intimate and other apparel, beauty and personal care products recently posted a 10% increase in comparable-store sales for November 2010, following a 9% increase registered in October 2010 and reflecting a sharp improvement from a growth of 3% in October 2009. Limited Brands now expects December comparable-store sales to rise in the low-single digits.
WEAKNESSES
Generally, retail companies have been under pressure in the recent downturn due to high inventory, lack of consumer spending due to weak disposable incomes and rising commodity prices. These companies have still not been able to offset these difficulties and are reporting flat or declining sales trends.
Hot Topic Inc. (HOTT), a shopping mall-based specialty retailer, remained in the red with same-store sales sliding 2.1% in November 2010. This marked the 19th consecutive month of falling same-store sales.
However, the drop in same-store sales narrowed considerably from a decline of 11.7% witnessed in the prior-year month. Hot Topic recorded a 1.8% drop in total sales, for the month, grossing $54.3 million. The company has been continuously reporting negative results attributable to the sluggish economic conditions.
American Eagle Outfitters Inc.'s (AEO) After a 2.0% decrease in the year-earlier period comparable-store sales for November came in flat. Total sales for the four weeks ended November 27, 2010, upped 2% to $272 million from $266 million for the four weeks ended November 28, 2009.
The Thanksgiving weekend boosted sales in the reported month thereby compensating for the softness observed during the rest of the month. Additionally, American Eagle pointed out that inventory management initiatives are working well and customers are reacting positively to the merchandise offering.
AMER EAGLE OUTF (AEO): Free Stock Analysis Report
ABERCROMBIE (ANF): Free Stock Analysis Report
BED BATH&BEYOND (BBBY): Free Stock Analysis Report
EBAY INC (EBAY): Free Stock Analysis Report
HOT TOPIC INC (HOTT): Free Stock Analysis Report
PENNEY (JC) INC (JCP): Free Stock Analysis Report
NORDSTROM INC (JWN): Free Stock Analysis Report
KOHLS CORP (KSS): Free Stock Analysis Report
LIMITED INC (LTD): Free Stock Analysis Report
TARGET CORP (TGT): Free Stock Analysis Report
WAL-MART STORES (WMT): Free Stock Analysis Report
Zacks Investment Research
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