Retailers have had it rough. AJ Wright, Blockbuster, Borders Group and Harry & David have all either gone bankrupt or needed bankruptcy protection in the last year or so. These are high-profile companies, so it doesn’t surprise me that investors have been nervous about retail stocks.
Despite this, there are real opportunities to make money in this sector. As we approach the biggest time of the year for retailers, it’s time for us to take a detailed look at where the opportunities are so that we’ll know what to expect this holiday shopping season.
Black Friday is a day celebrated by retailers because it is the day when retailers make the bulk of their sales and actually turn a profit (or go into the “black”) for the year. Billions of dollars are spent by gift-giving and bargain-hunting shoppers, and it has become a televised annual tradition for Americans.
Last year’s sales numbers were up 0.3% compared with 2009, and this year’s sales are estimated to rise another 2.8%. When you’re talking about $45 billion in sales, a 2.8% increase is no small amount — and these numbers are conservative estimates.
What most investors don’t realize is that retail sales have actually risen 15 straight months. The Commerce Department reported that September retail sales rose 1.1%, which represents the largest monthly increase in seven months. Economists were expecting a 0.8% increase in retail sales, so this was a very pleasant surprise, as was the fact that August retail sales were revised higher to a 0.3% increase — up from previously being reported as unchanged.
When we get into some of the specifics of the report, we see that September vehicle sales rose 3.6%, sales at restaurants and bars rose 1.2%, and gas station sales rose 1.2%. Three months of positive same-store sales from Walmart (NYSE:WMT) aren’t hurting the market either. So consumers appear to be buying big-ticket items like new cars, continue to shop at discount stores like Walmart and are dining out more.
I fully expect consumers to show up in force this holiday season as well.
This is great news for specialty retailers like Apple Inc. (NASDAQ:AAPL), Limited Brands Inc. (NYSE:LTD), Lululemon Athletica Inc. (NASDAQ:LULU) and Ross Stores Inc. (NASDAQ:ROST). It’s also good news for companies that make the components to popular gifts like ARM Holdings (NASDAQ:ARMH) who makes the energy-efficient chips that go in the iPhone, iPad and just about every other phone or tablet on the market. Discount retail stores Costco Wholesale Inc. (NASDAQ:COST) and Dollar Tree Inc. (NASDAQ:DLTR), the envy of the discount stores industry, will also benefit from the holidays due to same-store sales growth.
Lastly, since consumers represent approximately 70% of U.S. economic growth, a strong retail season is going to have a positive impact on Gross Domestic Product (GDP). An uptick in GDP would infuse the stock market with renewed confidence, putting fears of a double-dip recession where they belong — to rest.
This is a win-win for the market and for investors so make sure you take advantage of this opportunity to pick up retail industry shares ahead of the holiday boon.