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According to Wall Street Channel tests, consumers are looking much worse than expected at the end of this year.
Almost across the board, analysts express concerns about consumers shifting away from belt-tightening, commodity consumption. While e-commerce Expenditure is noted to be nominally rising Adobe Black Silver sales data, inflation dampens enthusiasm on that front. Meanwhile, Aggregate retail sales data Brick and mortar costs are coming down significantly.
“Inflation is pinching consumers at record levels, credit is hard to find, while the job force is only slightly better than it was a year ago,” Evercore ISI said in a note to clients on a cut in holiday sales. “To save money, consumers look to Scrooge for trade-ins (cheaper items), trade-ins (less gifts) and wait until the last minute for markdowns and deals.”
Consumers are spending more in key categories at retailers like Walmart, the company added.NYSE:WMT), Costco Wholesale Corporation (cost), and Kroger (KR) and reducing costs for products in the electronics, sports goods and apparel categories. Best Buy (NYSE:BBY) and target (NYSE:DGT) were mentioned as major retailers in the “Naughty List”.
Bank of America data reflects a similar movement, with more focus on apparel sales in the run-up to Christmas. Despite Black Friday sales, retail spending on clothing fell 9% year-on-year in November, according to bank data. In addition to the overall regression indicated by Evercore, cost increases for experiences and goods and inflationary effects were cited as driving factors for the trend.
“The shift towards leisure services may have contributed to weaker retail spending; leisure services spending has been higher than durable goods spending in the past two months, compared to pre-pandemic levels,” the bank’s analysts said. We expect that.”
While declining levels are expected to continue into 2023, the analysis pointed to pockets of opportunity in discount retail, taking advantage of higher inventory levels across the apparel industry. Therefore, retailers such as TJX Companies (TJX) and Ross Stores (Roast) could be big beneficiaries next year.
In the short term, Morgan Stanley advises that even a boost to holiday sales on last-minute holiday shopping will do little to benefit the bottom line amid a promotional environment.
“Retailers are poised to enter 2023 with clean inventory levels. For us, this is an incredibly competitive holiday sales season and creating heavy discount/promotional activity, again creating margin risk,” the bank’s analysts wrote. “In our view, excess inventory could impact retailers in 1Q and brands in 2Q .”
After meetings with the Alberts (the bird), Capri Holdings (CPRI), Nordstrom (JWN), Macy’s (M), Victoria’s Secret (VSCO), and Warby Parker (WRBY), Morgan Stanley was sidelined for all but two names. Nordstrom was valued at sales equivalents, Capri Holdings (CPRI) was given an equivalent rating to buy. The latter is noted to pinch European consumers nicely due to the inflationary storm, while the former is viewed negatively due to rising margin risks.
“As the tough early shopping lap fades, the weather improves, and while JWN’s revenue momentum improves from here, compared to Omicron, we see a risk to 4Q margins, with JWN increasing markdowns to ensure it meets that in the coming weeks. Sales targets and holiday inventory were wiped out,” the team concluded.
The retail-tracking SPDR S&P Retail ETF (NYSEARCA:XRT) is down more than 30% in 2022 while the e-commerce-focused Amplify Online Retail ETF (mother) has fallen by over 50%. By the end of the year, a Santa Claus rally is not in the cards, according to Wall Street analysis.
Read more about Latest retail sales data.