Retailers are increasingly worried about the holiday spending season. And so is Wall Street.
But investors — whether they’ve been naughty or nice — can reap profits in the retail sector even if holiday spending is sluggish.
Wall Street is once again clueless when it comes to gauging the spending of American consumers. During the Great Recession they missed the birth of a new spending pattern — I call it ”The New Frugal” – and they are about to do it again.
This new spending pattern means Americans, whether spending less, more or the same as last year, are diverting their spending to buy fewer items of higher quality for the gift season. They’ll buy quality brands and items from Apple (AAPL), Coach (COH), Ralph Lauren (RL) and Williams Sonoma (WSM). These retailers will benefit.
There is too much money to be made when cognitive dissonance on Wall Street creates opportunities for those who invest — literally — and shop with their eyes open.
Holiday spending on the skids
Why will it be a weak-to-lousy spending season this year?
- Thanksgiving comes very late this year, Nov. 28, meaning six fewer shopping days.
- The government shutdown and related insanity in Washington hurt consumer confidence and business spending. That will translate into reduced holiday sales.
- Mild December weather is forecast by the National Weather Service. This is not good news for clothing retailers.
- The new iPhone is going to suck an additional $5 billion or more out of other retail sales, maybe more.
- Many families are ignoring Ted Cruz and husbanding cash to buy their first ever meaningful health insurance policy. If the number hits five million households in March and savings begin now, that is another $5 billion to $10 billion not spent oh holiday purchases (my estimates).
You get the picture. Recent surveys by the best source I have ever used, ChangeWave Research (part of the 451 Group), is predicting it will be a very soft season.
To quote the ChangeWave survey: “The Oct. 1-16 survey of 2,074 consumers also shows a significant downturn in consumer expectations and sentiment. And as we saw in last month’s survey, the ongoing uncertainty surrounding the U.S. debt limit and government funding is largely responsible for the drop from already weakening levels.”
This is confirmed by the most recent Michigan consumer confidence data.
What does this mean? Is everyone staying home, despite Macy’s (M) announcement that it will open on Thanksgiving?
A trend toward quality goods
Nope, people will spend as they did during the birth of The New Frugal. They’ll spend the same amount, spend perhaps a little more, spend perhaps a little less, but spend on fewer, higher quality items and brands. An iPhone from Apple. A Coach leather backpack. A Tiffany (TIF) flask. A Ralph Lauren (RL) blazer from an outlet store. Or perhaps a new cooker from Williams Sonoma (WSM).
These customers are going to spend less at Kohl’s (KSS) and Target (TGT) and low-income customers are going to break Wal-Mart’s (WMT) heart (Well, given how they pay their employees, it’s won’t be a broken heart, it will be a broken holiday season).
I do believe as Wal-Mart gets hurt, the dollar stores will do a little better – especially Dollar General (DG), but don’t overlook Dollar Tree (DLTR). Wall Street is worried about Costco (COST) but I believe it will actually outperform expectations. Costco seems to have figured out how to grow much faster than Wal-Mart and still provide affordable health insurance for most employees.
Investors should not miss the opportunities this holiday season. There is too much money to be made when cognitive dissonance on Wall Street creates opportunities for those who invest — literally — and shop with their eyes open.
Take a look at the New Frugal yourself: go to a mall or an outlet mall and gauge what’s happening. Then take a look at your portfolio and opportunities from the supposedly weak spending season on the horizon.