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November 30, 2015

Cybersales Show That Black Friday Is Changing

by Jharonne Martis.

In 2015, the evolving retail landscape may indicate that the Black Friday scenes of shoppers breaking down doors in mall parking lots may be fading. Online sales continue to grow in significance.

This year, mall discounts on Black Friday were not as hefty, the store hours were shorter and the crowds were smaller than in previous years. Fewer stores were even open on Thanksgiving Day as retailers such as all TJX stores, Nordstrom and Sam’s Club decided to stay closed so employees could be with their families. However, some opened earlier on Black Friday.

The promotions that were offered were only on selected items, not throughout the store. This is surprising, given the huge inventory levels that retailers noted going into the holiday season. They didn’t offer more discounts to move that inventory.

And although it might seem like those cash registers are ringing, retailers keep warning us about holiday earnings. We’ve received more negative guidance since the beginning of November. Three weeks ago, we had 12 negative guidance vs. 40 today.

Exhibit 1: Q4 2015 Guidance

Source: Thomson Reuters I/B/E/S

Source: I/B/E/S data

Going online

The world of online shopping continues to expand. Earlier online deals offered shoppers convenience and kept them at home, vs. in their cars. Black Friday deals stretched out the holiday season with deals starting as early as the beginning of November and Black Friday discounts extended over Saturday and Sunday.

Consumers also are taking advantage of mobile deals via e-mails, social media and e-coupons on their phones.

Holiday sales are projected to show smaller growth than a year ago. The Thomson Reuters Same Store Sales Index is projecting a 1.3% growth for the holiday season, below last year’s 2.8% increase.

Early readings from analysts polled by Thomson Reuters suggest that online sales might have posted a larger increase than last year.

Cyber Monday

Cyber Monday deals also started earlier than usual, as retailers started sending emails saying that online deals were being offered on Sunday. This selling day continues to grow in popularity and retailers are offering more discounts and ways to entice shoppers, using emails, social media etc.

Retailers emailed the bulk of Cyber Monday offers from 6-8 a.m. so that consumers would see them in their inboxes when they arrived at work. More emails went out from 11 a.m. – 12 p.m. just in time to entice shoppers during the lunch break.

Omnichannel is king

Retailers are improving their online integration. It’s a win for retailers to have an omnichannel presence, offering shoppers a seamless experience. Walmart said it expects 75% of its traffic to come from mobile sources this holiday season. Online is more convenient and is taking a big piece of pie – Target’s in-store pickup seems to be a huge success. It’s so popular that its website was knocked out after shoppers swamped the site, lured by doorbusters.

Target had its employees shipping from its stores and said consumers used more mobile devices to shop this year. Target also said it saw record Black Friday online sales and in stores. Its order pickup option was up 35% before 6 p.m. on Thanksgiving. It also started offering its doorbuster deals early which helped outpace 2014’s Thanksgiving sales, driven primarily by electronics.

Winners and losers

Winning sectors were consumer electronics such as smartphones, Fitbits and wearable technology. In clothing, athleisure is here to stay. In fact, Lululemon sees it as such a strong trend that it is not running any Cyber Monday ads or promotions on their site. Athletic gear and apparel are selling well and footwear stores saw big crowds during Black Friday. All retailers have Star Wars gear, as anticipation of the new movie grows.

Best Buy had consistently the biggest line around the corner with shoppers lined up for the latest electronic items. The retailer announced that Cyber Week started on Sunday with tons of savings. The retailer said that over the Black Friday weekend, shoppers purchased twice as many wearables, including smart watches and health-and-fitness trackers, as they did a year ago (Source: BBY news release, 11/29/15).

JC Penney is the clear winner among the department stores. It offered its shoppers the discounts and coupons they want. Other department stores that also saw a healthy amount of store traffic include Kohl’s and Macy’s. Still, the department stores had massive amounts of Coach and Michael Kors merchandise that wasn’t being touched. Anecdotally, Sears saw less traffic.

Among the discounters, Target’s online doorbusters were very enticing. Analysts polled by Thomson Reuters suggest that Walmart’s inventory levels are higher than desired after the Black Friday weekend. Among teens, L Brand’s Pink and American Eagle’s Aerie saw strong store traffic and checkout lines.

And among the purse category, Kate Spade is the clear winner. It now has partnered with T-Mobile to sell tech accessories in its stores.

Exhibit 2: Winners and Losers – Q4 Holiday SSS estimates

Source: Thomson Reuters I/B/E/S

Source: I/B/E/S data

Watch out for Amazon

This strongest sector this holiday season is the Internet & catalog group. The sector is expected to far outpace the crowd, with an anticipated whopping 55.4% earnings growth rate. Of Internet retailers, Amazon has the biggest earnings growth rate in the group at 257.9%.

Amazon is poised to see earnings and revenue soar over the next four quarters. Analysts polled by Thomson Reuters agree that Amazon is crushing and stealing market share from other traditional retailers. The company has a Q4 EPS estimate of $1.61 for the current quarter, but a five-star analyst with a very accurate rating believes the company could surprise on the up side, and its EPS could be as high as $2.21 (up from $1.79 two weeks ago).

Exhibit 3: Amazon’s Earnings and Revenue Growth Projections: Next Four Quarters

Source: Thomson Reuters I/B/E/S

Source: I/B/E/S data

Online trends

E-commerce transactions still make up only a fraction of total retail sales – 7.4% as of the end of the third quarter, compared to 4.2% in early 2010 – but they have changed shopping patterns, and likely will only increase with the passage of time. Comparison shopping for deals is now easier. As a result, the shopper is more conscientious about what he/she is purchasing vs. doing more impulse shopping. Notice how e-commerce dollar sales kept growing as a percentage of total sales, showing that the amount of money consumers spend online continues to grow rapidly for the most part (Exhibit 4).

Exhibit 4: E-Commerce As a Percent of Total Retail Sales: 1999 – Present

Source: Thomson Reuters Datastream

Source: Datastream

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