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Tickers in this Article: M, BBY, XRT, RTH, WMT, AMZN, VCR, JWN, SKS
With nearly 70% of the United State's GDP driven by consumer spending, the Christmas holiday season is a critical times for retailers. With so much importance being placed on the frenzy that is Black Friday, the investing and retail community often waits with bated breath for this weekend's numbers. As 2010 has seen rising consumer confidence and stronger sales from retail chains, preliminary numbers for this past Black Friday could have retailers seeing some green throughout the spending season.

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Moderate Improvements
Early numbers for after Thanksgiving Holiday season kick-off showed that customer traffic increased by 2.2% and total sales were up moderately. According to industry consultant ShopperTrak, which records sales data at more than 70,000 stores and malls, total sales rose 0.3% over last year to $10.69 billion. According to the National Retail Federation, more than 138 million people were expected to shop on Black Friday, an increase of nearly 3% over 2009's numbers. A third survey conducted by NPD showed purchases rising by 4%. Venerable retailer Macy's (NYSE:M) recorded a nearly 40% increase in shopper traffic at its flagship store in Manhattan. Online purchases surged 33% on Thanksgiving Day as many retailers offered the same "door busters" on online websites.

The short term boost of Black Friday shopping is helping underscore some positive trends for the U.S. consumer. During the first two weeks of November, sales were up 6.1% and 6.2% respectively. The Commerce Department reported that incomes grew by 0.5% in October and that 41% of affluent Americans feel financially better off today than a year ago. In addition, many Americans have begun the process of deleveraging their own balance sheets. American's household financial obligations have fallen to 17% of disposable income. This is down from an all-time high of 18.9% in the third quarter of 2007 and is below the 30-year average of 17.2%.

A Retail Portfolio
Analysts predict that overall holiday sales will increase by 2.3% this year. This is large improvement over 2009's weak 0.4% gain and 3.9% sales decline in 2008. With the potential of a strengthening American consumer, investors may want to bet on the retailers themselves rather than one of their door busters.

Tracking a basket of 67 different retailers including Best Buy (NYSE:BBY), which reported increased customer traffic, the SPDR S&P Retail (NYSE:XRT) is the easiest way to add the retail sector to a portfolio. The exchange traded fund has gained 33.9% this year, with most of that increase occurring in the past three months as consumer confidence has strengthened. The XRT could see continued gains as holiday sales are predicted to increase. The fund yields 1.18% and charges 0.35% in expenses. Investors can also use the more concentrated Retail HOLDRs (NYSE:RTH) to gain exposure. The HOLDR allocates nearly 20% of assets in Wal-Mart (NYSE:WMT) and 11% in Amazon.com (NASDAQ: AMZN).

While consumer staples companies have become popular "ports in the storm" for investors during the recession, discretionary goods stocks will benefit from a strong holiday season. The Vanguard Consumer Discretionary ETF (NYSE:VCR) is the broadest fund in the sector, covering nearly 372 different firms. Expenses for the fund are a rock bottom 0.25%.

Finally, with the affluent feeling better about their economic situation, high-end retailers are seeing increased traffic. Both Nordstrom's (NYSE:JWN) and Saks (NYSE:SKS) have seen their sales outpace their discount equivalents. By focusing on the high end, investors can add a level of security to a retail portfolio.

Bottom Line
With the all important Black Friday sales figures beginning to come in and analysts predicting a jolly Christmas shopping season, investors may want to bet on the retailers. The combination of increasing consumer confidence and sales will benefit stocks in the sector. Either through a broad approach or zeroing in on the high end, portfolios can benefit from holiday spending. (For related reading, check out Analyzing Retail Stocks.)

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