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Why Is Black Friday in Danger?

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Yesterday, retailers across the country broke into a collective sweat. Consumer confidence slipped down to a seven-month low, putting a strong holiday sales season further out of view. Many companies were already expecting bad news, and of those, most already saw the signs of macro-level issues. The weakness is going to affect sales, but, more importantly, margins. That's going to leave the market with a bad taste in its mouth, and that's probably not going to help consumer confidence.

What's dragging on American shoppers?
What's wrong with American shoppers? The question has reached an almost comic level. Everything... everything is wrong with the American shopper. Unemployment rates haven't recovered. Income levels remain flattened. The U.S. government seems determined to burn itself to the ground. What more could a consumer want in life?

Even in the face of all that, the fall was still unexpected as October was so rough. The analyst outlook was that, in November, at least, we were done with the shutdown -- so maybe Americans would be feeling a little better about the economy. Nope.

Most troubling for retailers is that the outlook of consumers is lower, as well. The percentage of respondents expecting more jobs in the market dropped, as did the percentage expecting incomes to increase. That means less spending on frivolous items -- a Black Friday specialty.

The proof in the Christmas pudding
Surveys have already backed up the bad news, with some calling for a 10% drop in in-store shopping on Black Friday this year compared to last. That puts retailers in a pinch, with many expecting to have to fight their way out. New promotions and gimmicks are being rolled out this year in order to combat consumers' fiscal intelligence.

Companies like Wal-Mart (NYSE: WMT  ) and Target (NYSE: TGT  ) have announced new Thanksgiving Day openings. Wal-Mart is bracing for a backlash, with over 1,500 protests planned against the opening this year. Those actions are unlikely to deter shoppers, though. Last year, the company was also open and it reported strong sales, thanks to the holiday business hours.

Target isn't new to Thanksgiving or to protests, either. But both businesses are looking for big wins at the end of the year. With consumer sentiment so weak, Wal-Mart and Target need to finish the year on a strong note.

Other holiday shopping tricks
Opening on Thursday isn't the only option, and some retailers are simply offering different options to bring customers into the store. The classic Black Friday discount system ends up driving lots of business through the door, but often with damaging margins. Gap (NYSE: GPS  ) is offering discounts, but also giving customers chances to win prizes by shopping on Black Friday. That means that the brands are less reliant on deep discounting -- costly -- and more reliant on people wanting to win a trip -- relatively cheap.

The difference between the two groups is evident from looking at their stock performance over the year. Wal-Mart and Target are both thirsting for the quenching splash of new business, and both companies are lagging the S&P 500, year to date. Gap is out in front of the S&P, and has built a strong brand during the last 12 months. As a better business, it can bring in hesitant shoppers on its brand alone. Other businesses are clearly in need of more drastic measures.

A strong start to 2014
The market has stormed out to huge gains across 2013, leaving investors on the sidelines burned. However, opportunistic investors can still find huge winners. The Motley Fool's chief investment officer has just hand-picked one such opportunity in our new report: "The Motley Fool's Top Stock for 2014." To find out which stock it is and read our free, in-depth report, simply click here.

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  • Report this Comment On November 27, 2013, at 7:24 PM, wjcoffman wrote:

    Local Target opens 8pm on Turkey Day and doesn't close until 11pm the following day (Black Friday). I'm told the electronics will be especially discounted. Of all the consumer products that are virtually guaranteed to come down in price over time its electronics. Wait a few weeks after CHRISTmas and you'll probably get a better deal than if you shop at oh-dark thirty. I guess we're as stupid as we look (or is it we're as stupid as we shop?).

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9/23/2016 4:03 PM
GPS $22.62 Up +0.04 +0.18%
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