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Black Friday 2007
The Smart Profits Report: Issue #475
Wednesday, November 21, 2007
Black Friday 2007: Here’s A Retailer That Could Profit From The Madness Of The Holiday Season
By Martin Denholm
Managing Editor, Mt. Vernon Research
Talk about catapulting from the sublime to the ridiculous…
Tomorrow’s events are pretty straightforward. A little coffee to wake me up, followed by some turkey and wine to put me right back to sleep again! Plenty of relaxing.
Then it all goes a bit nuts. All in the spirit of the season - and a fat serving of good, old-fashioned capitalism, of course. It’s the most important day of the year for the retail sector - a time to catch fire or flame out. I’ve got the story for you - and a potential success story. So, what will you be doing on Black Friday 2007?
Will Black Friday 2007 Give Retailers A Black Eye?
The National Retail Federation says more than 140 million Americans hit the stores on Black Friday 2006, looking to scoop up some serious bargains. (By the way, Black Friday refers to the official start of the holiday shopping season, when retailers hope to sell enough to put them “in the black”). In 2007, even more shoppers are expected to descend on the malls.
I have one word for you: “Uggh!” Don’t get me wrong, I actually like Thanksgiving a lot. I’ve experienced a few since coming over from England (where we unfortunately don’t have anything similar) and it’s probably my favorite holiday.
But one tradition I’ve never understood is why so many people, having barely digested Thursday’s gargantuan meal, then head out to the stores at the crack of dawn the next morning (a day off!) to gorge themselves again - this time on goods.
Folks, just enjoy the time off! Why put yourself through crazy traffic, the parking lot lottery, and the checkout chaos?
I don’t intend to go anywhere near a store on Black Friday 2007. I hate shopping at the best of times and getting up close and personal with hundreds of stressed-out strangers, falling over themselves as they stampede into stores, just ain’t my idea of a good time. The discounts you want will probably still be there in December, as retailers fight desperately for dollars. But I fully expect to see pictures of idiots fighting over merchandise again. Season’s beatings, anyone?
So what do retailers expect?
Pump Pain Leaves Consumers Gassed
In just two years, the retail sector looks to have come full circle. In 2005, holiday season sales jumped by a robust 6.6%. Last year, that figure declined sharply, but still showed a healthy 5.1% increase. In 2007, however, the story is different.
This time in 2006, gasoline prices were around $2.25 a gallon, as oil prices cooled off. But now, the reverse is happening. Despite steadily rising oil prices, the summer didn’t produce the same high gasoline prices. But that’s all changed now, with oil’s march to yet another record high of $99 today and gasoline selling for around $3.10 a gallon - and rising.
The result is that 38% of consumers cite high gasoline prices as the main reason for scaling back their spending this year. More than one-third of respondents said they’d scale back their buying this year, according to a Consumer Federation of America and Credit Union National Association poll. As a result, retailers only expect sales to rise by 4% during the fourth quarter.
As if that weren’t enough, the Chinese are shoving all kinds of nasty materials into kids’ toys, sending parents’ into a spin…
Lead Paint And The Date Rape Drug… Merry Christmas, Kids!
Quite a Christmas conundrum for parents this year. How do you give the kids a good one without hospitalizing them? It might be tough. First, it was dangerous levels of lead paint in toys. Then it was magnets that kids could swallow. Result? A recall of around 21 million toys. Now, it’s a recall of Aqua Dots toys tainted with the date rape drug and reports of kids knocked unconscious after swallowing them.
Okay, words fail me on this one. I’m not even going to attempt to figure out how this could happen. But the fact that all these contaminated toys are in high demand could toss an unexpected wrench in retailers’ hopes this season. A Harris Interactive poll shows that one-third of Americans will buy fewer toys this Christmas, due to safety concerns, with almost half saying they’ll avoid toys made in China. Not good, considering about 80% of all toys are made in China. And how do you explain that disappointment to excited kids?
To compensate, many stores are cutting prices early and often. But this, coupled with consumers’ cutting back on spending, could erode profit margins. So where do you look for retail bargains - both at the store and when investing?
The American Dream This Christmas: Fresh Fashions… Top Quality… Low Prices
You hear a lot about what America’s mega retailers like Wal-Mart (NYSE: WMT) and Target (NYSE: TGT) are doing to woo customers - when they’re offering their deep discounts, how much they’re discounting, and how long they’re doing it.
The whole investment world looks at these bellwethers as a guide to the rest of the retail sector. Investors pounce on good news and punish poor numbers. But don’t ignore the so-called “off-price” retailers. I’ve taken a look at these guys and one firm that could do well here is The TJX Companies, Inc. (NYSE: TJX).
Consumers looking to cut back could find some attractive bargains on good quality merchandise at companies like this. TJX already buys some of its inventory from other retailers’ overstock. And after the worst October in 12 years for retail sales, the big boys are looking to shift a ton of excess inventory in a big way. What it can’t sell directly to its customers, it passes off to other retailers like TJX, which is able to gobble it up at much lower prices. So customers get new fashions at bargain prices. And in this season of record oil prices and rising gasoline and home energy prices, that could be just the ticket.
“A Market Full Of Buying Opportunities”
Already, T.J. Maxx is profiting. Despite that ugly October for the overall sector, the firm notched up a 3% same-store sales rise - the second straight month that it beat forecasts. In its 30 years of operation, the T.J. Maxx chain has posted a same-store sales increase in 28 of them.
The upbeat October followed a third quarter that saw revenue increase 6% to $4.74 billion over Q3 2006, leading to an 8% jump in profits to $249.5 million ($0.53 a share).
On the earnings call, CEO Carol Meyrowitz called the market “full of buying opportunities” and revealed that, “The level and quality of goods out there is amazing.” The firm raised its fourth-quarter earnings guidance from 57-59 cents per share to 58-60 per share.
Not only that, it announced plans to add 1,000 new stores to its existing 2,500 in the U.S. (T.J. Maxx, Marshalls, HomeGoods, A.J. Wright and Bob’s Stores in the northeast), the U.K. and Ireland (under T.K. Maxx) and its Canadian chain called HomeSense, which will expand into the U.K. and Germany next year.
Please note, this is not an actual recommendation - just some food for thought as you digest. Hope your Thanksgiving doesn’t involve sitting in a traffic jam, or enduring crowds and delays at a mall or airport!
Martin Denholm
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Today’s Smart Profits Action Center
- If consumers don’t manage to heave themselves off the couch to hit the bricks-and-mortar stores on “Black Friday,” there’s always the Internet. Monday is “Cyber Monday” - the biggest online shopping day of the year - and a BIGresearch survey for Shop.org says 54.5% of office workers (68.5 million people) will shop online, up from 50.7% in 2006 and 44.7% in 2005. Not surprisingly, mall-shy men like me account for 57% of the total.
- I could do without the constant TV updates on the state of the nation’s travel tie-ups. The local news crews love this time of year just like they love severe weather. Gives them a quick ‘n easy story. Airport officials are asking fliers to “pack neatly” and “de-clutter hand luggage.” Seriously? I think most adults know how to pack a bag and to be honest, I don’t even know what “de-cluttering” one’s hand baggage means or entails.
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