Don’t Shed Retail Stocks Just Because of Dire Holiday Spending Headlines

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Judging just from this weekend’s headlines, it would be easy to assume retail stocks like Amazon.com, Inc. (AMZN) to Zale Corporation (ZLC) were best left avoided due to tepid holiday spending thus far.

retail-stocks-holiday-spendingThe National Retail Federation reported on Sunday that 5.1 million fewer shoppers were out spending on Black Friday of this year compared to 2013’s Black Friday. And, total spending for the weekend was last projected to be 11% weaker than what was seen in the equivalent weekend a year earlier.

Before investors assume the worst regarding retail stocks and holiday spending this year, though, it may be worth taking a step back and looking at the bigger picture. When all is said and done, Christmas 2014’s total retail sales are apt to grow just as firmly as they almost always do.

Retail Stocks Will Be Just Fine

Between Thursday and Sunday, 133.7 million U.S. consumers were reported to have shopped, either online or at a bricks-and-mortar retailer, according to Prosper Insights & Analytics. That’s down 5.2% from 2013’s total retail visits (web-based or otherwise). Foot traffic or the long weekend was down roughly 5% compared to last year’s store visitors. Total spending for the weekend fell from last year’s estimate of $57.4 billion to only $50.9 billion this time around.

The numbers in and of themselves paint a grim picture. However, they don’t paint the whole picture for retail stocks.

The fact of the matter is, retailers have gotten very good at offering fantastic deals at a point in time when they don’t have to compete head-to-head with their competitors.

A study done by Adobe Systems and examined by the Wall Street Journal in early November of this year explained that the best prices from retailer were actually offered beginning the weekend before Thanksgiving, with an average discount of 24% at that time. One conclusion in response to the Adobe study was that consumers could skip Black Friday shopping altogether and buy their items well after or even well before the weekend after Thanksgiving.

And yes, consumers have gotten very good at finding the best deals, recognizing they may actually be better served by holding out until later in the shopping season, or in some cases doing some of their shopping before Thanksgiving.

The end result of this constantly-shifting discounting and bargain-hunting? Keeping a tally on this past weekend’s spending totals has become a pointless exercise.

Here’s why retail stocks shouldn’t worry…

Holiday Spending Moves Offline

Aside from the calendar displacement of holiday shopping, e-commerce sales are growing faster than many investors may realize. This growth may end up offsetting what appeared to be weakness at first.

It’s a figure that still pales in comparison the total of more than $50 billion spent on Christmas gifts during Black Friday weekend, but on Friday alone — Black Friday — comScore reports that online holiday spending reached $1.5 billion. That easily surpassed the single-day e-commerce sales record of $1.01 billion, which just so happened to hit the day before — Thanksgiving day. Thursday was the first time online holiday spending eclipsed the $1.0 billion, single-day milestone

Those numbers jibe with forecasts offered by IBISWorld in an analysis that points out that Cyber Monday sales have grown at a strong double-digit pace every year since 2010, with this year’s projected Cyber Monday online sales projected to grow 15%, to nearly $2.2 billion. That would just be a microcosm of the migration away from traditional shopping at brick-and-mortar establishments along with the increasing desire to avoid any shopping whatsoever the weekend after Thanksgiving, though.

All told, comScore predicts online holiday shopping for the entire season will improve by 16%, reaching $61 billion. That increase bodes well for retails stocks like Amazon and even those brick-and-mortar names with a strong online presence, like Wal-Mart Stores, Inc. (WMT). Indeed, this impending $8 billion increase in online shopping may well be what’s needed to offset this weekend’s lackluster results.

Bottom Line

Like so many other things, Black Friday retailing as well as Black Friday shopping have become something of a cat-and-mouse game between stores and consumers. In fact, holiday spending has become such a psychological chess match that many parties on both sides of the able choose not to play it at all during Black Friday weekend. Instead, much of the buying is done later, or in some cases it’s done even before Thanksgiving.

That buying does get done, though. It always does.

That’s not just a broadly-stated theory either. Despite what consumers are saying, with the exception of 2008 when the wheels were simply falling off the economy’s cart, total holiday spending has grown every year since 1993. With unemployment currently at multi-year lows, profits at record highs, and six straight months of solid GDP growth, shoppers know they can spend with some confidence.

Retail stocks are going to be just fine.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2014/12/retail-stocks-holiday-spending/.

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