With the holiday shopping season now in full stride after Black Friday, it will be a difficult period for retailers that are facing excessive inventory amid a lack of consumer spending. Over the next few weeks, we expect major markdowns in pricing to eliminate inventory, which will translate into lower margins for retailers.
Yet, on a more upbeat note, the results from spending on the Black Friday weekend were positive. According to the National Retail Federation (NRF), over 172 million shoppers visited stores, up from 147 million for Black Friday 2007 and much better than the 128 million estimate. As far as the dollar amount spent, the average spent per person was $372.57 compared to $347.55 for the comparative period last year. The results are better than expected, but we need to consider that much of the buying was due to discounting.
The reality is that sectors such as auto, housing and appliances continue to face buying pressure. Jobs continue to disappear from the U.S. landscape and consumer confidence is on the decline. Add in the impact from lower housing values and a corresponding decline in home equity loans and you have more concerns.
Retail analysts are predicting a weak season for shopping. For consumers, there will be major bargains, but it will be at the expense of the retailers.
If you are currently holding retail stocks, here is what you may want to consider. Given the neutral to negative sentiment towards retail stocks, you could write some covered call options on your stocks to generate some premium, thus reducing the overall average cost of the stock in question.
For those of you looking at the sector, the valuation of some retailing stocks are cheap even if you cut the earnings to account for the slower expected growth, Take a look at some of your favorites and begin to set a price you want to buy at. Once the spending reverses, we will see a jump in retailing stocks.