This year’s holiday season will have six fewer shopping days. Thanksgiving falls on November 28, leaving less than a month of the shopping season between Thanksgiving and Christmas. Morgan Stanley analysts Kimberly Greenberger, Scott Devitt, Ellen Zentner and Jay Sole said in a research note to investors that this holiday season is gong to be the weakest since 2008.
Retailers up the ante to attract customers
They expect holiday season sales to rise a meager 1.6%, which is 2.2% below the average of 4-year holiday seasons between 2009 and 2012. The analysts used bottom-up analysis to reach the 1.6% figure, which is 1.9% below last year’s 3.5% growth.
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Holiday season promotions
Morgan Stanley (NYSE:MS) said that retailers will push the promotion panic button to attract customers. Wal-Mart Stores, Inc. (NYSE:WMT) has started offering online holiday deals one month in advance. The analysts expect J.C. Penney Company, Inc. (NYSE:JCP) to offer steep discounts to get sales. It will slash other retailers slash prices, resulting into increased pressure on their profit margins. Morgan Stanley expects fourth quarter gross margins for specialty retailers to plunge 0.66% YoY.
Morgan Stanley (NYSE:MS) highlighted four things that indicate weak consumer spending. One, according to the National Retail Federation, an average holiday shopper is expected to spend $737.95 this year, down 2% from the previous year. Two, 79.5% of those polled by NRF said that they plan to cut their spending this holiday season, and 51% said economic conditions will affect their spending. Three, according to Bloomberg data, the number of consumers expecting the economy to deteriorate rose at the highest level since October 2008. Four, Halloween spending is down 6% this year, which last time declined in 2009.
Discretionary spending relocation
Moreover, consumers have become more conscious. They are reallocating their discretionary spending to durable such as home improvement, auto, and appliances from apparel. As a result, car sales are expected to spike 11% this year.
Effects of Macro-economy on the holiday season
Sliding gas prices, increase in wealth and debt dynamics have definitely increased consumers’ buying power. But the government shutdown and high unemployment rates still cloud the outlook. After having seen several economic ups and downs, consumers have become more conscious. Though they have the ability to spend, they are not willing to shell out money.
Anyway, weak consumer confidence, short holiday season and increasing value consciousness among consumers will prompt time-strapped population to purchase online for convenience. Morgan Stanley (NYSE:MS) expects e-commerce sales to account for 12-13% of total holiday season sales this year, up from 11% in 2012.
Which companies will benefit the most this holiday season?
According to Morgan Stanley analysts, Amazon.com, Inc. (NASDAQ:AMZN), Michael Kors Holdings Ltd (NYSE:KORS), L Brands Inc (NYSE:LTD) and Ross Stores, Inc. (NASDAQ:ROST) will emerge as the holiday winners. Amazon’s popularity, vast supply chain and efficient service will make sure that the company delivers a strong holiday. Its third-party marketplace platform is expected to deliver strong results. Last holiday season, third party sellers posted 40% increase in units sold. The refreshed Xbox and PlayStation video games will boost sales in a key category. This year, Amazon has hired 40% more seasonal workers to meet the holiday season demand.
Michael Kors Holdings Ltd (NYSE:KORS) is poised to deliver the best sales growth this holiday season, says Morgan Stanley. Women are shifting their apparel budget to accessories. Michael Kors Holdings Ltd. (NYSE:KORS) is the best company in this category, and is less prone to discounting. The beauty and intimate apparel products are far less likely to witness extensive promotions. That will benefit Bath & Body Works and Victoria’s Secret businesses of L Brands Inc (NYSE:LTD).
The analysts believe that the off-price retail will snatch market share from department stores. That will directly benefit Ross Stores, Inc. (NASDAQ:ROST). Now more consumers prefer better brands at a lower price compared to the better shopping experience that department stores provide.