What Weak Black Friday Sales Mean for Retail Stocks

Black Friday sales fell well short of expectations. But that doesn’t mean you should go selling off all of your retail stocks just yet.
There’s no point in sugarcoating it: Black Friday sales stank.
By now, you’ve read the headlines. Yes, headlines from the mainstream media can be misleading. Yes, there were some encouraging numbers mixed in with the weak overall sales. But the reality is that this Black Friday weekend fell well short of economists’ expectations.
The numbers tell the story:

  • Sales for the four-day Black Friday weekend, starting with Thanksgiving, totaled $50.9 billion – down 11% from the $57.4 billion U.S. shoppers spent in 2013. It’s the second straight year that Black Friday sales have dropped.
  • Black Friday shoppers spent an average of $380.95, down 6.2% from 2013.
  • Some 133.7 million people shopped over the Black Friday weekend, 5.2% fewer shoppers than a year ago.

With gas prices at their lowest level in five years, economists expected shoppers to take that excess cash and spend it in droves on early Christmas, Hanukkah and Kwanzaa gifts last weekend. Didn’t happen.
Not surprisingly, retail stocks have taken it on the chin since the lackluster sales figures were released. The SPDR S&P Retail ETF (XRT), which tracks some of the bigger names in retail on the S&P 500, is down more than 1% since Black Friday. Wal-Mart (NYSE: WMT) shares have fallen 3.2% over the same span. Best Buy (NYSE: BBY) has plummeted 8%. Macy’s (NYSE: M) has slipped 2.3%.
That doesn’t mean those stocks will stay down for long.
Black Friday sales were unequivocally disappointing. But that doesn’t mean holiday sales as a whole will be a bust.
For one, many Americans have simply shifted their early holiday shopping to the web. After all, not everyone wants to wait in line for three hours in a Wal-Mart or Best Buy parking lot at midnight on Thanksgiving. I don’t. It’s far easier to shop in your pajamas from the comfort of your own home at a reasonable hour.
The Cyber Monday results reflected that change in consumer thinking.
Consumers spent more than $2 billion on Cyber Monday, a 17% improvement from a year ago and the largest online spending day in history. Even before Cyber Monday, online sales improved. On Saturday and Sunday of Black Friday weekend, shoppers spent another $2 billion – 26% more than they did a year ago.
At least in theory, that benefits online retailers such as Amazon.com (NASDAQ: AMZN) and eBay (NASDAQ: EBAY).
Black Friday is still big business. Even with an 11% year-over-year drop in spending, $50.9 billion spent in one four-day weekend isn’t exactly chump change. Black Friday sales will still likely account for more than 40% of total holiday shopping sales.
But it seems the Black Friday spectacle is going the way of the transistor radio and the rotary phone. It’s an outdated business model. No one likes big crowds and standing in the cold and long lines. This is the instant-gratification generation. People want something now, Now, NOW!
On Cyber Monday, people can do all their holiday shopping in about 30 minutes with a few clicks of a mouse. On Black Friday, you’ll wait longer IN lines than you would shopping online.
I don’t think poor Black Friday sales are a harbinger of a weak holiday shopping period. Unemployment is at a pre-recession low, consumer confidence has largely been restored, and gas prices are still a relative bargain. That doesn’t guarantee retailers will see record spending this month. But it does mean there’s reason to believe that holiday spending won’t be as bad as this Black Friday would suggest.
Don’t sell your retail stocks just yet … especially the ones that have a large online sales presence.

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