The first two are obvious:
1. Retailers make a disproportionately large shares of their profits during the final quarter of the year. For some highly seasonal businesses (toys, coats, ski equipment…), they aspire to simply break even during the first nine months of the year and cash in during the last three.
2. The continuing erosion of bricks-and-mortar market share to online merchants. Highly seasonal firms are particularly susceptible to online competition, but they have also been battered for decades by general merchants like WMT or TGT, which expand and contract various departments as the seasons change.
The third is very simple, but often overlooked by Wall Streeters:
3. The holiday selling season runs from Thanksgiving to Christmas. But the number of selling days can vary considerably from year to year.
Thanksgiving is the fourth Thursday in November. If November begins on a Thursday, as it did last year, Thanksgiving is on the 22nd. So the holiday selling season consists of 8 days in November and 24 in December = 32 days. That’s the longest.
If November begins on Friday, as it does this year, Thanksgiving is on the 28th. That means the selling season is 26 days long. That’s the shortest.
Historically, people shop until December 24th–and spend more when the selling season is longer. So revenue and earnings comparisons are the toughest possible this year.
4. In the post-Great Recession world, retailers hold another belief as firmly as they hold #3. It’s that consumers have firmer budgets than they previously have had. Therefore, if a retailer isn’t the first place a consumer goes to, it runs the risk that the potential customer will have run through his budget already–and (contrary to pre-Great Recession behavior) won’t purchase, no matter how attractive the merchandise is.
So this year there’s immense pressure both to get off to a good start and to move the starting line forward, to Thanksgiving Day or even earlier, if at all possible.
My guess is that the holiday season will be more successful for retailers in general than Wall Street currently expects–despite the shortest possible selling season. Why? …strengthening employment and lower gasoline prices.
The more interesting question, to my mind, is who the relative winners and losers will be. In particular, will AMZN’s agreement to collect state sales tax on its online transactions affect its business negatively? My guess is that it will. I think the beneficiaries won’t be the bricks-and-mortar stores that lobbied heavily for this, but instead smaller online merchants who still sell tax-free–including (maybe especially) the ones AMZN displays on its site but only fulfills for.
Also, will BBY’s decision to match online prices in its stores and to rent out space to third parties like Samsung and MSFT have a positive impact on sales? I say yes. What about profits? I think they have to be lower. But my instinct is also to say they’ll be better than the consensus expects. I’m not about to bet the farm that this will be so, however.