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Retail Sales Advance on Black Friday Not Enough

The recent news on the retail sales on the Black Friday, deemed by most analysts to be the most important indicator of the sector for the whole year, advanced by 0.5% versus last year (2008),according to ShopperTrak RCT Corp.  Should this be enough to lift the retail stocks?

Black Friday is the day before the US Thanksgiving, one of the most important holidays in the US.  This day marks the beginning of the official Christmas holiday for retailers, since the sales really start to pick up and the competition is increasing among the retailers. Some analysts define the Black Friday as the day when the retailers’ P&L statements go from red (losses) to black (profits).

Huge discounts to laptops and LCD TV’s attracted the usual crowds of people trying to get an early bargain. But what is different from the previous years is the fact that the discounts given this year are much higher than in the previous years.

Many analysts are looking at this with optimism. “We’ve seen a gradual retail sales increase over the last two weeks and with Black Friday’s performance, it looks like November will be a positive month for retailers,” Bill Martin, a ShopperTrak co-founder, said in the statement. “The 1.6 percent increase we originally predicted for the holiday season remains intact.” But in my opinion, this optimism is a bit exagerated.

Why? According to my research, retail stocks are 7.51% higher than in the previous year (weighted average). Compared to a 0.5% increase in sales, it means that there will be some disappointment going around which might make the sector share prices drop. It might look as simple mathematics indeed. And some might argue that the sales are only 0.5% higher, but in real terms the increase is larger due to the discounts. Yet, I could argue that even if the discount are on an average of 40% (hardly likely), the 0.5% growth in sales could become 1% – still a large difference from the 7.5% in prices. The retail (discounts and supermarkets) stores are highly dependent on the Christmas sales and the first signs are not looking good…

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