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Successful Investing
We Need A Little Christmas Right Now!
by Andrew Leckey
In
past years, I've complained loudly about how retailers always
rush the holiday sales season.
But don't expect any
objections from me this time around. Kick right onto that time
of joy and giving. Spray fake snow and hang wreaths in every
store. Dress all salespeople as elves. Decorate me like a Christmas
tree and call me Santa.
We all need a change
of pace in this brutal year and we need it now.
Expect aggressive store
promotions and extensive discounting, which is some cause for
rejoicing among shoppers. It's been tough sledding for retailers
the past 18 months and consumer sentiment remains low. Stores,
which ring up 40 to 60 percent of their annual sales between
now and yearend, want a boost.
While Microsoft's new
Xbox video game system and Nintendo's new GameCube are expected
to be big sellers, don't look for all that many pricey gifts
under the tree. Discount stores are likely to post sales gains
in this belt-tightening year, while department stores and upscale
retailers face an uphill battle.
"Although the
nation's retailers face an easy comparison with last year, it
will be a challenging year in which consumers buy lower-priced,
basic necessities, not the more profitable, bigger-ticket items,"
predicted Mark Mandel, retailing analyst with Sun Trust Robinson
Humphrey in New York. "At the same time, retailers have
seen their costs for energy, utilities and insurance go up."
An overall sales decline
of 1 percent for the retailing group is predicted by Standard
& Poor's. That includes a 2.5 percent gain from discount
stores, a 3.5 percent decline from department stores and an 8
percent decline at high-end stores.
"The weak side
all year has been apparel because of the weak economy, the trend
toward more casual dress and an aging population not so concerned
with clothing," explained Karen Sack, retailing analysts
with S&P in New York. "That means a much weaker selling
season than last year."
Nobody seems to be
rushing into any purchases these days.
"There's a frugal
nature to the consumer right now and I expect low single-digit
retail sales growth in this holiday season,' said Jeff Stinson,
senior research analyst with Midwest Research in Cleveland. "Excluding
any other terrorist activity or large international events, consumer
sentiment will likely begin to improve in 2002."
Customer Traffic at
most stores and malls is down, and there will probably be greater
electronic and mail order shopping this holiday season, believes
Derek Leckow, retailing analyst with Barrington Research Associates
in Chicago.
"When people know
who the actual sender of a package is, their fears are minimal
or nonexistent, and most mail order companies have long-term
agreements with UPS or Federal Express for their delivery,"
pointed out Leckow. "Besides mail order, I also expect people
will be spending more time buying gifts at bookstores this holiday
season."
According
to Amy Blankenship, director of the Direct Market Association's
Shop-At-Home Information Center in New York, catalog and online
sales have remained steady at pre-Sept, 11th levels and many
catalog companies have experienced increases.
"People are staying
closer to home, spending more time with families and friends,
and that means more shopping from home," said Blankenship.
"Also, the fact people aren't traveling as much means more
gifts will be sent, rather than given personally."
Top picks among retailing
stock reflect the unique trends of this difficult year:
- Wal-Mart Stores Inc. (WMT), the world's largest retailer, is a strong stock recommendation of Mandel, Sack and Stinson. The weaker economy has actually drawn more customers to this popular discounter, pushing its sales up more than 15 percent in the past quarter. The company operates 1,736 discount stores, 888 Supercenters, 475 Sam's Clubs and 19 Neighborhood Markets stores.
- Land's End Inc. (LE), a famous catalog business that had a terrific third quarter and is likely to excel in the fourth quarter, is a stock pick of Lecknow and Sack. It sells traditionally-styled casual clothing for men, women and children, as well as accessories, shoes and soft luggage.
- Family Dollar Stores (FDO), although its stock has already had a good price run, is suggested by Mandel and Sack. It operates 3,875 self-service discount stores with very low overhead costs. Its merchandise includes household chemical and paper products, health and beauty aids, snacks, electronics, house wares, toys, hardware, automotive supplies, clothing, sheets and towels.
In
addition, Mandel recommends discounters Dollar Tree Stores
(DLTR) and Fred's (FRED), a small retailer in the southeast.
Northeast discounter
BJ's Wholesale Club (BJ) is a Sack pick. She also likes
Sear, Roebuck & Co. (S) not so much for its current
holiday prospects, but because it has lowered its cost structure.
She expects that Neiman Marcus and Federated Department
Stores will be among those having a tougher time this season.
The shares of discount
stores Target (TGT) and Kmart (KM) are suggested
by Stinson. Large department stores such as May Department
Stores and Federated Department Stores will be
under pressure, he believes, and so will specialty apparel chains
such as Gap and Limited.
Finally, Lecknow sees
good prospects for booksellers Barnes & Noble (BKS)
and Borders Group (BGP), as well as the drug store chain
Walgreen & Co. (WAG)"
Editor's Note: Andrew
Leckey's column, "Successful Investing," appears regularly
in the Bull & Bear Financial Report print version.
