Santa’s not a smoker, as far as I know. But he’s old, and his belly shakes when he laughs “like a bowl full of jelly,” according to one poem. Those are risk factors for Covid-19, so I suppose it was inevitable that
said this past week that the bearded gift-giver wouldn’t sit with children at any of its stores for the first time in 159 years.
That’s as good a signal as any for investors who own shares of retailers to contemplate the spending implications of a socially distant Christmas. If a new forecast from UBS has it right, things will look jolly at first, until they don’t, which might provide a selling opportunity in November.
The good news: Retail sales picked up smartly in September, the latest reported month. Joblessness remains high, but many who are working have money to spend, after months of forgoing family trips and meals out.
The National Retail Federation says it is “cautiously optimistic” about fourth-quarter sales, which is like a cheerleading squad that gets the crowd chanting m-a-y-b-e. But UBS analyst Jay Sole published a report this past week predicting that U.S. holiday sales will fall 10% to 12% year over year. If that’s right, depressed store stocks could have further to slide later this year.
The prediction refers specifically to so-called softline goods, like clothing and accessories, not hardlines, like electronics and appliances. It’s based in part on surveys of U.S. shopper intentions. This year, 41% said the economy would affect their holiday spending versus 28% last year. That’s the biggest change since the global financial crisis more than a decade ago. The numbers suggest big shifts toward online shopping and away from department stores, and with fewer customers paying online and then picking goods up in stores.
There is a sharp increase in the number of shoppers who say they will start their holiday shopping by Nov. 1. “Our guess is this demand ‘pull-forward’ will cause early holiday season reads to look good,” Sole writes. “However, we think once retailers start to lap big shopping weeks near Thanksgiving, real-time indicators will weaken, causing stocks to react negatively.” Sole is most bearish on department stores Macy’s (ticker: M),
(KSS). But he’s bullish on brands that can “go it alone” without department stores, like
There are a few big unknowns. The U.S. is experiencing a third major surge in Covid-19 cases, hospitalizations, and deaths. If that trend continues through Christmas, then, well, on Donner, on Blitzen, we’re all in deep you-know-whatzen. Also, part of a summer lift in consumer spending was owed to government stimulus programs to help the needy and support the economy.
We are likely to get more stimulus after the Nov. 3 election, once political calculations subside, because there are no deficit hawks