Christmas Is Going to Be Even Worse Than You Think for Retailers

Retailers are in full-on panic mode. Wal-Mart (NYSE: WMT  ) is offering a 32" flat-screen TV on Black Friday for only $98, one-third less than its cut-rate deal last year. Just about every retailer is eschewing the traditional start to the holiday shopping season and opening up on Thanksgiving Day itself, while Sears Holdings (NASDAQ: SHLD  ) is so worried that its Kmart stores will open up at 6 a.m. that day and stay open for 41 hours straight.

Analysts at Morgan Stanley predict this will be the worst holiday shopping season since the depths of the recession in 2008. Burdened by $148 billion in new payroll taxes that started in 2013, consumers face a looming health care tax next year if they don't have coverage by March 31 (not to mention the other Obamacare taxes that kick in on Jan. 1). And at the start of this month, 47 million food stamp recipients saw their benefits cut, a move that will only serve to worsen the results at big-box retailers like Wal-Mart and Target (NYSE: TGT  ) , which see around half of those benefits spent in their stores.

According to Bloomberg Industries analysts, the big-box stores receive some $36.2 billion of the $72.9 billion of SNAP benefits spent in total. Another $25 billion are spent at supermarkets, so don't think Kroger, Safeway, and SUPERVALU will walk away from this unscathed, either.

Although Wal-Mart tries to spin the cuts as beneficial -- when stretching the dollar becomes paramount, the discount retailer becomes "more relevant" -- there's more than one reason it was forced to cut its full-year earnings forecast again.

All this is happening at the same time that retail sales, consumer confidence, jobs growth, and core durable goods sales are falling, or at best are weak. Wholesale inventories are growing, up 0.4% in September according to the latest figures, which may mean retailers will be caught with a lot of excess inventory come the new year.

As the unemployment rate remains intractably above 7%, the non-participation rate soars to a record 91.5 million people, and the federal government's fiscal policies remain in disarray -- after all, Congress and the president merely booted the debt-ceiling problem down the road by a few months -- Christmas is shaping up to be a disaster spending-wise.

Although the National Retail Federation has put up a brave front, saying sales will rise 3.9% this year (which it admits is only a marginal expansion from last year's 3.5% increase), it might still be in for a rude awakening. The market researchers at ShopperTrak forecast sales will grow only 2.4% this year, down from 3% last year and 4% the year before that, and other analysts are equally dour with their expectations.

Adding to their woes, online retailers could steal a proportionally larger number of sales than they did last year. Online Black Friday sales surged 26% in 2012, crossing the $1 billion threshold for the first time as 57.3 million Americans visited e-commerce sites, itself an 18% increase from the prior year. That was surpassed only by the $1.5 billion spent on the following Cyber Monday, the made-up marketing holiday that's taken on a life of its own.

The NRF's Shop.org says that over the months of November and December it expects online sales to surge 13%-15% from last year, hitting as much as $82 billion. Amazon.com (NASDAQ: AMZN  ) was the most visited site on Black Friday in 2012 (followed, in order, by Wal-Mart, Best Buy, Target, and Apple), and there's no reason to think it won't be the beneficiary again this year. But even if some retailers make up in e-commerce what they lose at their brick-and-mortar stores, there's going to be little holiday cheer for the majority of them.

A quirk of the calendar means the period between Black Friday and Christmas Day contains six fewer days than it did last year, shortening an already perilous holiday season. There will be few winners when the soot settles and margins get compressed as a result of the hyperpromotional environment we're in. Shoppers may score some great deals, but investors shouldn't expect to unwrap any earnings gifts come the new year. 

A stocking full of coal
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