The Grinch is about to steal Christmas again this year. Yet another analysis shows that consumer spending this holiday season will leave retailers singing the blues. In this case, market researchers at Morgan Stanley believe this will be the worst Christmas for the retail sector since 2008.
In a report entitled "Expect Coal," the investment house said that despite lower gas prices, rising home values, and a Federal Reserve-inflated stock market, same-store sales will rise just 1.7% in the fourth quarter. I'd dismiss Morgan Stanley's claim of the government shutdown as a contributing factor -- workers are getting paid for their time off, even if there were some displacements in orders. A bigger issue might be a lack of consumer confidence while unemployment remains intractably high.
Maybe retailers aren't exactly hitting the panic button, but when everyone from Macy's (M -2.68%) to Target is opening their doors on Thanksgiving Day to get an early start on holiday shopping, you know they're worried.
While Sears Holdings has been criticized for pushing the envelope by starting Christmas promotions too soon, Wal-Mart (WMT 0.46%) proved it's also not above testing the boundaries by surprising everyone with major sales beginning immediately after Halloween. No one's leaving anything to chance.
There is reason to worry, of course. The traditional shopping season that runs from Black Friday to Christmas Day is six days shorter this year -- 25 days instead of 31 last year -- as Thanksgiving comes late on Nov. 28. You can be sure retailers will tout that excuse in quarterly earnings reports beginning next January.
Yet consumers are also using their extra cash to buy some big-ticket items, like houses and cars. Consumers have been piling on more debt again, but not on their credit cards. Rather, they've been adding debt for autos, tuition, and even vacations, as nonrevolving debt jumped to an annual 8% growth rate.
According to RealtyTrac, residential property sales rose 2% sequentially in September and were up 14% year over year. Amazingly, almost half of sales were all-cash deals. Automakers are also seeing higher sales, with the Big Three all recording double-digit gains in October. General Motors sales were up 16% last month, Ford was 14% higher, and Chrysler saw an 11% rise. The government shutdown is obviously having no effect on auto sales and likely won't have one on Christmas shopping.
Morgan Stanley said even removing troubled department store chain J.C. Penney (JCPN.Q) from the equation won't help the retail situation. While Penney's is expected to go heavy on promotions in a bid to regain lost customers, eliminating its contribution suggests retailers are going to see comps come in at less than half the 3.5% rate seen last year.
The folks at ShopperTrak think it's going to be only slightly better than the investment house's gloomy outlook, anticipating a 2.4% rise in sales compared to 3% last year, 4% in 2011, and 3.8% in 2010. Worse, traffic at stores will contract year over year.
While there's good reason to think online shopping will make up for a portion of the lower sales and loss of foot traffic, the National Retail Federation has tried to indicate the glass is half-full, suggesting a 3.9% increase in holiday sales to $602.1 billion, up from 3.5% a year ago. The International Council of Shopping Centers says following a 7.4% jump in third-quarter sales, the season won't be the bust everyone is predicting.
Of course, there might be better-than-expected numbers this year, but that's likely only because Hurricane Sandy blew apart a good portion of the East Coast in 2012, shutting down businesses for a week or more. Wal-Mart sustained $36 million worth of damage alone to its stores. Macy's and Bloomingdale's shut hundreds of stores in the storm's aftermath.
Maybe retailers will still be able to gather around the tree in the middle of Whoville, holding hands and singing carols, despite Christmas having been stolen out from underneath them. But investors should be wary that all they'll find in their stockings this year is a lump of coal.
