After a couple of very difficult years, the current holiday shopping season is expected to be quite strong. Retailers have been building inventory and hiring temporary staff over optimism that consumer spending is again on the upswing. The season officially gets underway the day after Thanksgiving and is known as Black Friday, which is meant to indicate that this is the period where retailers earn their profits for the year or go from operating in the red to the profitable black on the income statement. (What people buy and where they shop can provide valuable information about the economy, see Using Consumer Spending As A Market Indicator.)
Here is an overview of particularly festive products and the firms that are likely to benefit as shopping sentiment turns strikingly more cheerful this holiday season.
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The holidays are a time of indulgence and there are plenty of holiday parties and family get-togethers for those with a sweet tooth to take advantage of. Christmas candies include a wide array of fudges, candy canes, peppermint bark and plenty of chocolate-based desserts. The overall industry is mature, as global candy and chocolate markets have been around for some time, but, as with any industry, innovation can always garner new sales. Current trends include savory products that combine a sweet and salty flavor, such as bacon and chocolate. This product category has grown close to 20% annually over the past few years while high-end chocolates have continued to perform well in a tougher economy.
Privately-held Mars is among the largest candy companies in the world and sells well-known brands including Milky Way, M&M's and Snickers. Hershey (NYSE:HSY) is one of the largest pure-play candy firms and focuses on selling namesake chocolate bars and bake-sized chips and cocoas. It also owns the Reese's, Kit Kat and Twizzlers brands. Tootsie Roll (NYSE:TR) is a much smaller candy firm, but is also a pure play in the space, selling namesake candies, Tootsie Pops, Andes Mints and Junior Mints, just to name a few brands.
Holiday spirit also includes spirits such as wine and alcohol. The holidays are a period for higher-end alcoholic brands to shine given the wider array of mixed drinks at holiday parties and get-togethers. This is actually also a secular trend in the industry as consumers move to premium drinks that offer higher name recognition and are also seen as having less calories than stodgier beer offerings. This trend slowed somewhat during the recession, but emerging markets continue to embrace trendier, higher cost brands as income levels steadily increase.
Constellation Brands (NYSE:STZ) is the largest public purveyor of wine with leading brands including Robert Mondavi, Blackstone and Ravenswood. Fortune Brands (NYSE:FO) operates a division that sells leading spirit brands including Jim Beam, Maker's Mark and Courvoisier. Central European Distribution Corp. (NYSE:CEDC) bills itself as the largest vodka firm in the world and can be counted on in its primary markets of Russia and Poland for the key ingredient into screwdrivers and Bloody Mary's on New Years. Costco (Nasdaq:COST) is one of the largest retailers of alcohol in the United States while Cost Plus (Nasdaq:CPWM) represents a unique location to pick up an eclectic supply of wine and beer for the holidays. (Like beauty, whether something is sinful often depends whom you ask, read The Evolution Of Sinful Investing.)
Thanksgiving is one of the busiest holiday periods during the year and so is Christmas as many families travel across the country to visit loved ones. New Year's festivities include travel to vacation destinations. Orlando is a favorite family destination given the many Disney (NYSE:DIS) theme parks in the area. Colorado is also popular as a snow-filled destination that offers a holiday feel and world-class ski resorts owned by Vail Resorts (NYSE:MTN). And Las Vegas is among the most popular New Year's destinations as party-goers stay at casino hotels from the likes of MGM Resorts (NYSE:MGM) and Wynn Resorts (Nasdaq:WYNN).
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Deals should be plentiful for many resorts given supply is still high after a rapid building boom that ran out of steam during the credit crisis. Total hotel and gaming industry sales have yet to recover to 2008 levels, but should again exceed $48 billion by the end of next year, according to some estimates. Supply growth has also slowed down and should help the industry return to more normalized profit levels within a couple of years.
Online an Especially Festive Place
A trend that was not at all affected by the credit crisis and subsequent plummet in sales over the past couple of years has been the growth in online shopping. Consumers continue to embrace digital shopping venues. For starters, it is perhaps the easiest form of gift buying during the holidays. Retailers are increasingly offering online specials at about the same time bricks-and-mortar deals are available on Black Friday, making it easy to avoid the traffic, hassle and occasional injuries that occur in the real world. The virtual world also allows the ability to avoid sales tax in many instances and free shipping is becoming common for larger order sizes. (Check out Shopping Online: Convenience, Bargains And A Few Scams.)
Total online sales are growing in the double digits and are projected to reach about $250 billion by 2014, according to estimates by Forrester Research in March of 2010. They currently account for approximately 7% of total retail sales but should rise to 8% over this period. This is still a relatively small percentage and demonstrates just how much potential exists for virtual shopping. Firms of note in this space include eBay (Nasdaq:EBAY) and Amazon (Nasdaq:AMZN). Both grew market share during the most recent recession and have the brand recognition and scale to garner a large share of online shopping volume. Of course, nearly all traditional retailers have an online presence and are seeing big gains from loyal virtual customers.
The Bottom Line
It won't be long before investors start poring over Black Friday's retailing results in hopes of determining which product categories and specific retailers beat expectations. It isn't necessarily true that companies make all of their profits during the holiday season, but it certainly impacts just how naughty or nice shareholders will be on their share prices after ringing in the New Year.
Find out what happened in financial news this week. Read Water Cooler Finance: Insiders, Door Busters And Debt Contagion.