Black Friday

By Markos N. Kaminis - Economy and Markets

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We expect that when the final tally is taken this year measuring Black Friday business, it will present illusion. We anticipate traffic will measure heavy, but for all the wrong reasons. So, be careful of the headlines that read, "Shopping Not So Dire. Stores Packed." Don't let such news intoxicate you into thinking the retail share selloff or commercial real estate bearishness has been overdone. It has not.

(Article interests: AMEX: DIA, AMEX: SPY, Nasdaq: QQQQ, NYSE: NYX, AMEX: DOG, AMEX: SDS, AMEX: QLD, AMEX: XLF, AMEX: IWM, AMEX: TWM, AMEX: IWD, AMEX: SDK)

Black Friday traffic can be misleading. Local news channels and newspapers will likely report that shoppers were out in force this year, but be careful not to miss the point. Americans didn't hit the streets before the sunrise Friday morning in order to shop like there's no tomorrow. They were bargain hunting!

What is Black Friday

Black Friday is a cultural wonder. In America, it's the day most retailers turn the year's red ink into a profit. It marks the beginning of the holiday shopping season. One-day deals and early morning promotions have been long-employed to draw shoppers into stores. During this one day of chaotic consumption, Americans often begin buying for the holidays and sometimes fill their entire gift list. Competition for this critical foot traffic leads retailers to continually outdo one another with marketing innovation. This year, Wal-Mart (NYSE: WMT) made a last minute declaration to match any advertised deal. That's not a new gimmick, but an effective one nonetheless.

The goal of every retailer is to entice shoppers to their locale for store-wide deals and special item promotions, or carrots to spur overall sales. Once you're there for the special deal, odds are you'll buy a few more things as well. Retailers even offer loss leaders, or goods they take a loss on the sale of, in order to get you into their vinyl tile trap. It's a gamble that often pays off, but this year, retailers are noting a hit and run mentality. Shoppers are hitting the stores precisely for the deal, and getting out to the next deal somewhere else.

Get a Grip, It's Only a Sale

Shoppers were so frenzied to save a few dollars Friday morning that a couple horrible examples of human character were exposed. At a Wal-Mart in Long Island, NY, competitive and desperate shoppers trampled a clerk to death after they broke through the doors of the store (we assume after they were unlocked). So, a life was lost for the greed of a few dollars saved. There are also stories on the wire of heart attacks born by superficially excited shoppers. People even lined up through the night, camping out in the cold to buy something at discount. It's a sign of the times.

As a result, I expect data counters will note an increase in Black Friday numbers this year. More and more Americans are desperate for a deal. As the legions of jobless grow, and security and real estate wealth is lost, Americans are growing wary of spending hard earned and long saved dollars on gifts.

Even so, it's the holidays. American culture has taken a time of goodwill and transformed it into a time of goods. We've grown so accustomed to gift giving that even in times like these, we're prone to continue. So, that's why Black Friday is likely to prove especially busy this year. Come this time next year is another story though. Many Americans have only just lost their jobs after all.

The Damage is Mounting

Without a doubt though, shoppers are spending less, leaving an oversaturated retail environment quickly consolidating. Recent store closures and/or bankruptcies of operators like Radio Shack (NYSE: RSH), Macy's (NYSE: M), Circuit City (NYSE: CC), Talbots (NYSE: TLB), Linens 'n Things, Mervyn's and others seem sure to prove the beginning of an even greater re-evaluation of the retail marketplace. Weekly data from the International Council of Shopping Centers has only deteriorated further with each passing week. After sliding into negative year-over-year territory a couple weeks ago, sales only sank deeper last week.

ICSC Sales Trends
Week Ended	Yr/Yr Growth	Wk/Wk Growth
Nov 22	-0.8%	-0.9%
Nov 15	-0.1%	+0.3%
Nov 8	+0.4%	-1.0%
Nov 1	+0.9%	+0.6%
Oct 25	+1.3%	+0.5%
Oct 18	+0.9%	-1.6%
Oct 11	+1.0%	+0.7%
Oct 4	+1.3%	+0.1%
Sep 27	+1.1%	-0.2%
Sep 20	+1.3%	-1.0%
Sep 13	+1.3%	-1.6%
Sep 6	+1.9%	-0.1%
Aug 30	+2.2%	+0.1%

Luxury retailers are even finding themselves caught off guard, according to the CEO of Overstock.com (Nasdaq: OSTK). This is leaving high-end brand goods overstocked. Tiffany (NYSE: TIF), Saks (NYSE: SKS), Neiman Marcus and other high-end retailers have had a very rough last couple months. While many of the wealthy may still have plenty of money, they're also shell-shocked by the demise of Wall Street, tumbling high-end real estate values and halved stock prices. Besides this, they seem to have no hiding place for capital, and thus have rushed into low yielding treasuries.

Many retail analysts expect intelligent shoppers to wait out the store operators, putting off purchases until late in the season as they count on retailers getting desperate. I also advise shoppers to wait for the best deals yet to come. Retail industry investors are likewise better off waiting a bit longer before picking through the sales bin.

Wal-Mart shares have benefited as the discount retailer that also offers grocery goods steals market share from several categories of competitors. But, when the all clear is given to buy retail stocks, you'll likely find higher returns elsewhere. Just as WMT has benefited lately, its shares have benefited from industry destined capital finding safe haven. However, when it's generally safe, or even tempting, to buy retail stocks again, money should flow out of Wal-Mart and into other names. For now though, we would stay put.

Conclusion

Black Friday is a long day, far from concluded even at this early evening hour of publishing. A black holiday season also seems far from finished. While the day may prove healthy, remember why it would. Also, compare high traffic counts to likely drab revenue and profit margins, as sales pervade the marketplace. In this supposed season of holiday cheer and jolly good times, the current sentiment leaves one to wonder, could this be the year without a Santa Claus? The casualties are mounting both literally on the bloodied store floor and within the industry's shares. Thus, you might think twice about buying a stock you could want to return after Christmas.


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