Retail stocks remain in focus as the holiday shopping period
is now in full swing.
Adobe Analytics, which tracks transaction data for the majority of the top Internet retailers in the country, reported that online sales grew 23.6% year/year on Black Friday. That comes after online sales grew a record 28% on the day of Thanksgiving, according to Adobe Analytics.
This robust sales growth does not come as a surprise. Per indicators, the U.S. consumer has been strong all year.
And yet, retail stocks, best represented collectively by the SPDR S&P Retail ETF (XRT), fell to a six-month low last week.
Sales have been strong, but the retail environment is as competitive as ever, though the spaces in which retail competitions are played out have continued to evolve with changing technological capabilities and buyer habits. Retailers have boosted online efforts in order to accommodate consumer preferences. They have been forced to follow the standard that Amazon set: namely, free delivery without minimums.
However, increased e-commerce efforts weigh on margins. Margin concerns seem to be the primary culprit for the underperformance of retail stocks as of late. Higher freight and shipping costs weigh on gross margins while higher wages weigh on operating margins.
The holiday shopping season now spans nearly six weeks, during which companies compete for consumers online 24/7, making inventory positioning and execution a challenge.
Investors also seem to be concerned that 2019 will not be as strong as this year, should consumer spending slow.
Many retailers will report holiday sales figures and update guidance in early January. Focus will remain on the bottom line as retailers need to show that they can profitably thrive in the changing retail landscape.
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