For retailers, the last two months of the year are crucial, accounting for about 40% of annual sales. But shopping may be muted this year because of the huge disruptions from Hurricane Sandy. The nor’easter expected to hit New York and New Jersey today could make matters even worse.
According to NPD Group, traffic at retailers dropped by about 7% in the Northeast last week. Yet the firm maintains its estimated 4.1% growth growth rate for the Christmas season.
But there will likely be a shift in spending. That is, consumers will probably focus more on shopping for necessities and replacement goods. This could cut into the traditional Christmas spending for gifts.
If so, that will likely be a boost for retailers like Target (NYSE:TGT), Wal-Mart (NYSE:WMT) and Costco (NASDAQ:COST), all of which provide a wide assortment of basic items for low prices.
Demand at retailers that focus on home repair should also jump, with the most obvious players being Home Depot (NYSE:HD) and Lowe’s (NYSE:LOW). And other niche operators should also do well. One is Lumber Liquidators (NYSE:LL), which has already been growing at a rapid clip, thanks to the recovery in the real estate market.
But while dollars flow to these retailers, it could mean less demand for more discretionary items like jewelry, fashion items or toys. Let’s face it, many consumers remain constrained and often live paycheck-to-paycheck. Thus, they may not have much left to spend on Christmas gifts. This could be bad news for companies like Macy’s (NYSE:M), Nordstrom (NYSE:JWN), Abercrombie & Fitch (NYSE:ANF) and American Eagle Outfitters (NYSE:AEO).
So, it’s probably a good idea for investors to be cautious on retailers, especially those that rely heavily on discretionary spending. This Christmas could prove to be not so jolly.
Tom Taulli runs the InvestorPlace blog IPOPlaybook, a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of “How to Create the Next Facebook.” Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.