For at least the past couple of weeks the Promotions tab of my email inbox has been stuffed with a gazillion Black Friday promotions. In the bricks and mortar world, Wal-Mart (WMT) has announced that this year its Black Friday period will last for 10 days (today is day one). [The term “Black Friday,” by the way, originated in Philadelphia, according to the Visual Thesaurus, as a police description of the extra work they had to do on the Friday and Saturday after Thanksgiving.]
In the years immediately after the Great Recession, retailers, led by Wal-Mart, began to try to push the traditional start to the holiday shopping season forward from Friday to Thanksgiving Day itself. The theory hat lent urgency to this endeavor was that times were bad and consumers had little desire or ability to do extensive shopping. Therefore, the first merchant to make a sale would do well; retailers who held back would find consumers’ wallets already empty.
What investment significance–if any–does the move of Black Friday from the week of Thanksgiving to the week before the holiday have?
My take:
–I don’t think this is a sign of overall economic fragility, as it was several years ago.
–I do think, though, that spending on big-ticket items like housing and autos has left consumers with less cash for other items. This is a normal pattern worldwide, including the US prior to the crazy bank lending spree that led to the financial crisis.
–WMT’s customer base is skewed toward the less affluent. The company is facing increasing competition from dollar stores, as well as, I think, a rejuvenated Target.
–I suspect that there’s a Millennials/Baby Boom element to the promotional environment, with physical stores positioned to serve the latter–so that those retailers are competing in a no-growth arena. One interesting (to me, anyway) aspect of the WMT promotion is that Black Friday prices are available today, but only in the stores, not online.
–My inbox bloat may just reflect my online shopping habits and have no further significance. Still, any online merchant has the ability to avoid using the blunt instrument of price reduction and use couponing or customer-specific pricing to drive sales instead. The idea is at least as old as dynamic pricing for airline tickets. The practice is likely much more widespread than I care to believe.
My conclusions:
Most important, I don’t think signs of an increasingly promotional holiday season are a red flag either for overall US consumer spending or for the stock market.
Personally, I’m looking more for Consumer Discretionary names that are online or Millennials-oriented rather than physical store/Boomer plays. No surprise there …in the eternal struggle between Concept (growth) and Valuation (value), I’m normally going to be in the growth camp. There will be times when valuation trumps potential. I don’t think now is one of them, although I have noticed that for the first time in years WMT has begun to outperform. If anything, this suggests to me that the holiday shopping season may be better for everyone than I’ve been thinking.