After the news of an uptick in the U.S. economy with GDP expanding at a 3% annual rate in the third quarter, retailers got another reason to smile just ahead of the festive season. Consumer Confidence — a key determinant of the economy’s health — reached its highest level in almost 17 years. Per the Conference Board data, the Consumer Confidence Index surged to 125.9 last month from September’s revised reading of 120.6.
Analysts believe that buoyant stock market, gradual wage acceleration, fall in the unemployment rate to 16-year low, and a lift in the economic activity post-hurricanes were enough to boost consumer sentiment. We expect this positive sentiment to translate into higher consumer spending that may help increase sales.
Consumer spending, which accounts for more than two-thirds of the US economic activity, surged 1% in September, recording its biggest monthly increase in almost eight years. The rise in spending was led by robust sales of autos and other durable items. All these sound favorable for retailers, who try to make the most of the season that accounts for a sizeable chunk of yearly revenues and profits.
Holiday Season: Likely Bonanza for Retailers
We are entering the festive season with Thanksgiving, Black Friday, Cyber Monday and of course Christmas lined up to take you on a holiday shopping spree. Competition will certainly be tough, be it at the brick-and-mortar stores or online portals, the retailers need to be hawk-eyed. Retailers will go the extra mile be it early-hour store openings, huge discounts, promotional strategies, price matching and free shipping on online purchases.
Indeed, shopping season is likely to be more blissful for retailers. Data compiled by the nation's largest retail trade group, National Retail Federation projects a 3.6-4% rise in November and December sales (excluding autos, gas and restaurant sales) to $678.75-$682 billion, up from $655.8 billion last year and better than the five-year average sales growth of 3.5%.
The data unveiled by Kantar suggests that sales during the fourth-quarter holiday period is expected to jump 3.7%. Data compiled by eMarketer forecasts 3.1% jump in holiday sales (November and December) to $923.15 billion, while retail e-commerce holiday season sales are anticipated to rise 16.6%.
Retailers such as Macy’s, Inc. M, J. C. Penney Company, Inc. JCP, Target Corp. TGT and The Gap, Inc. GPS are bracing up for this year’s race and have announced hiring plans for the upcoming holiday season to meet the holiday rush.
Wrapping Up
From Amazon AMZN to Wal-Mart Stores WMT retailers are gearing up for the busiest part of the year. With digital transformation in shopping and consumers splurging online retailers are fast adopting the omni-channel mantra.
Wal-Mart is making huge investments in e-commerce initiatives. The company’s acquisitions of ShoeBuy, Moosejaw, ModCloth and Jet.com are in sync with its quest to build an impressive digital brand portfolio. Also, the company partnered with Alphabet’s Google to enable shopping through Google Express using voice-activated service.
Target has been also focusing on developing its online business. In a bid to stimulate digital sales this holiday season, the company is strengthening its relationship with Google by allowing customers nationwide to shop through Google Express, including voice-activated shopping. Recently, it waged war against other retail big-wigs by aggressively cutting prices on a range of items and launched curbside pickup program, at 50 Twin Cities stores
As you can see, there are plenty of reasons to be optimistic about the retail sector but what about investing in the space right now? Out of the stocks mentioned above, Amazon carries a Zacks Rank #2 (Buy), while Wal-Mart, Target, Macy’s and Gap carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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