Tuesday, January 31, 2023
HomeMarketBlack Friday Started Strong. Four Reasons It Matters.

Black Friday Started Strong. Four Reasons It Matters.

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Black Friday is here and, while it’s no longer the powerhouse it once was, this holiday weekend is still the most important date on the retail calendar. So far data show consumers are snapping up deals.

As of early Friday, it seems Americans were eager to turn from turkey to bargain hunting. Americans spent a record $5.29 billion on Thursday according to
Adobe
(ticker: ADBE), mostly on their phones: Mobile shopping accounted for 55% of sales—another record.

Americans were spending mostly on toys—top sellers spanned Hot Wheels to videogame consoles—but also getting themselves gadgets,
Apple
(AAPL) AirPods in particular, and smart TVs and digital cameras.

Still, the strain of inflation is being felt. Online buy now pay later (BNPL) revenue was up 1.3% this year.  

Data from
Salesforce.com
(CRM) were similar. That firm said 78% of all online traffic from the U.S. was on mobile, and online sales were up 9% from last year to $7.5 billion. Globally, online sales rose 1% from 2021 to $31 billion.

Deals were there for the taking, if not eye-popping ones. Salesforce noted that online discount rates were up 6% from last year to 27% globally, and up 7% domestically to 31%.

It also noted the average value of BNPL transactions decreased in the U.S. by 6% on Thanksgiving, showing shoppers were choosing to finance lower-priced goods—another sign that while inflation may be cooling, it’s still painfully high.

Black Friday is no longer a single day, but an event that stretches from Thanksgiving to Cyber Monday. The stakes are high, so investors will want to know if Santa splurging or skimping.

Adobe says Americans have spent $77.74 billion so far in November, up 1% year over year, likely due to the fact that inflation is crimping budgets—as well as shoppers’ willingness to return to stores as the Covid-19 pandemic wanes.

Yet some consumers may simply be holding out for better deals. While few may wait to go to the office to shop, Adobe expects Cyber Monday to rake in $11.2 billion, just over 5% more than in 2021.

Overall, Adobe anticipates Americans will spend $34.8 billion over the Black Friday/Cyber Monday long weekend, which stretches from Thanksgiving to Monday. That would put it up 2.8% year over year, and mean the five-day period would account for more than 16% of the November-December shopping season.

Because the holiday season is the most important for retailers, Black Friday has always been watched closely. Yet there are a few reasons it will scrutinized more keenly this year.

The first is, of course, inflation. As mentioned above, hopes weren’t particularly high going into the holiday season; while Americans were expected to spend more than last year, that’s not because they are feeling flush, but because they have to spend more to get the same goods. In fact, holiday spending when adjusted for inflation is expected to fall.

Yet that prediction may prove too cautious. As of October, the most recent month for which data are available, inflation has been easing and retail sales have been stronger than expected. Moreover, retail earnings season is just getting under way, but so far several companies have turned in surprisingly strong results.

Therefore, one big question is to what extent inflation will hurt holiday sales.

Another is whether those sales will hurt retailers—with inventory running high, many stores used deep discounts to clear their shelves this summer. As a result, retailers’ stocks were slammed this summer when earnings showed margin-crunching promotions hurt profits.

We won’t know until later, of course, but discounts will remain in focus throughout the fourth quarter.

That ties into the third reason this weekend will be under a microscope, namely the extended holiday season. With inflation gobbling up customers’ discretionary dollars, retailers from
Amazon.com
(AMZN), to
Walmart
(WMT) and Target (TGT) started offering holiday deals in October. The thought was they needed to lock in sales before budgets were tapped out, so the sooner the better.

That could account for some of October’s strong spending. As the cost of living inched back strapped shoppers may have jumped at deals, hoping to score much-needed savings. After all, consumer confidence remains very depressed.

So investors will be watching the long Black Friday weekend for information on whether or not demand was simply pulled forward to October, or is stronger than expected. If shopping already peaked in October, peaks this weekend, or remains strong from now through December that will say a lot about the health of the consumer.

And that is inextricably tied to the performance of retail stocks and the broader economy. Black Friday alone isn’t as huge as it once was, but if spending data for the long weekend come in strong, that could go a long way to helping battered retail stocks regain some footing after falling more than 27% in 2022, as measured by the SPDR S&P Retail ETF (XRT).

We have already seen some relief, with the XRT up 7.6% in the past month—rallying ahead of the broader market as early earnings reports show shoppers are more resilient than bears expected.

Given that consumer spending accounts for more than two thirds of the U.S. economy, a robust showing this weekend could give everyone reason to be jolly.

The Federal Reserve, which may see consumer spending power as a reason to keep raising interest rates is the exception. But then there’s always a Grinch somewhere.

Credit: marketwatch.com

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