Early reports indicate that Black Friday sales were a disappointment. According to the National Retail Federation (NRF), sales on the weekend fell 11 percent to $50.9 billion from $57.4 billion last year. There was more bad news in the breakdown of that number, too. More than 6 million less people than expected actually went out and shopped over this weekend, and those that did go spent less. The average spend was down 6.4 percent from last year, at $380.95.
Despite the NRF’s best efforts to put a positive spin on this, these aren’t good numbers. For investors, however, the reason for these numbers is way more important than the numbers themselves. Is this a sign of an underlying economic malaise or does it say more about the concept of “Black Friday” than the economy in general?
The former view, that these disappointing numbers hint at reduced spending throughout the holiday season, is supported by the consumer confidence numbers for November that were released last week. They were disappointing to say the least; the headline number came in at 88.7, a surprise drop from October’s revised 94.1. The evidence supporting the latter view, however, is anecdotal and based on common sense, rather than data.
Here the theory is that battling fellow shoppers to save a few bucks on something has grown a little old. Media coverage would seem to suggest that that is the case; this year saw far less footage of rampaging crowds fighting for the last discounted gizmo, or so it seemed to me. Similarly, from a purely personal and anecdotal perspective, it was hard to find anybody who was enthusiastic about braving the Friday morning crowds to save a few bucks.
Of course, that could say more about the social circles that I move in than anything, but just a couple of years ago, attitudes in those same circles were different. Back then, frugal was in vogue. Everybody was proud of their extensive use of coupons, Groupon (GRPN) was all the rage, and bargain hunting was just what you did. Now, conspicuous consumption is creeping back. The shame of spending has dissipated.
As I say, all of this is personal and investing 101 tells you to trust the data, not your feelings or experiences. If, however, your experience is similar, you may want to consider the implications. If frugal consuming is really passé, then a somewhat disappointing Black Friday weekend makes sense. Why rush to Wal-Mart (WMT) or Target (TGT) and battle the crowds to save a hundred bucks on a no-name TV when what really matters to you is refresh rate or whether the screen is curved or not? Why fight for deeply discounted store brand clothing when your wife is only interested in something from Versace?
All of this just re-enforces what many felt before the season started. The play this year is going to be on quality, not volume. Companies such as Tiffany (TIF) and Williams Sonoma (WSM) will have a relatively better holiday season than Wal-Mart or Target. As the American middle class comes out of its shell somewhat, it could also set up a recovery for a sector that has been under severe pressure: department stores.
Those at the high end such as Nordstrom (JWN) can be expected to continue their good run. The chart, however, would suggest that much of the value and opportunity there are gone.
There may be more short term opportunity in department stores that have been disappointing all year. Both Sears Holdings (SHLD) and JC Penney (JCP) would fit that bill. Both offer affordable access to name brands for the quality conscious shopper that seems to be re-energized this year. It is likely that both stocks will be marked down over the next few days as a result of the weak weekend sales. If they do later report that consumers are less discount driven than in the last few years, however, weakness will be very short-lived.
In both cases there are problems that run deeper than seasonal shopping figures so caution in the long term is probably wise, but for the next couple of months, both could react positively to any hint of good news. If we believe the evidence of our ears and anticipate a shift in sentiment rather than trusting the official, backward looking numbers, then some long-awaited good news for mid-range struggling retailers could be coming. Shoppers may focus more on quality than value, but investors should probably do the opposite and buy out of favor, cheap retail stocks.