Rising Consumer Confidence To Lift Retailers' Holiday Spirit

After the news of an unexpected uptick in the U.S. retail sales — +0.2% — in October, retailers got another reason to smile as they head into the holiday season. Consumer Confidence — a key determinant of the economy’s health — reached its highest level in almost 17 years. Per the Conference Board data, the Consumer Confidence Index surged to 129.5 in November from October’s revised reading of 126.2.

Analysts believe that buoyant stock market, gradual wage acceleration, fall in the unemployment rate to a 17-year low, and a lift in the economic activity post hurricanes were enough to boost consumer sentiment. The positive sentiment is likely to trigger consumer spending, which accounts for more than two-thirds of the U.S. economic activity. Any increase in this metric at this juncture signals consumers’ willingness to spend more this season.

This Means a Lot for Retailers

Improving labor market, rising disposable income and elevated consumer sentiment have ushered confidence in retailers about a robust holiday season. The festive season is often a make-or-break time for retailers, as it accounts for a sizeable chunk of yearly revenues and profits. Be it early-hour store openings, huge discounts, promotional strategies, price matching and free shipping on online purchases, retailers will go the extra mile.

The five-day holiday period starting from Thanksgiving, followed by Black Friday, Small Business Saturday to Cyber Monday, marked an auspicious start to the holiday-shopping season. Per National Retail Federation (“NRF”) approximately 174 million customers shopped in stores and online during this weekend. The trade group estimates that an American spent about an average of $335.47 during the five-day period.

Indeed, shopping season is likely to be more blissful for retailers. With Christmas falling on Monday and 32 days after Thanksgiving, shoppers are getting one extra day compared with last year and an extended weekend to do last minute purchasing.

Overall, NRF projects a 3.6-4% rise in November and December sales (excluding autos, gas and restaurant sales) to $678.75-$682 billion, up from $655.8 billion last year and better than the five-year average sales growth of 3.5%. Data compiled by eMarketer forecasts 3.1% jump in holiday sales (November and December) to $923.15 billion, while retail e-commerce holiday season sales are anticipated to rise 16.6%.

Wrapping Up

From Amazon (NASDAQ:AMZN) to Wal-Mart (NYSE:WMT) , Target (NYSE:TGT) to Macy’s (NYSE:M) and Gap (NYSE:GPS) to Best Buy (NYSE:BBY) , retailers are gearing up for the busiest part of the year. With digital transformation in shopping and consumers splurging, online retailers are fast adopting the omni-channel mantra.

Wal-Mart is making huge investments in e-commerce initiatives. The company’s acquisitions of ShoeBuy, Moosejaw, ModCloth and Jet.com are in sync with its quest to build an impressive digital brand portfolio. Further, the company partnered with Alphabet’s Google (NASDAQ:GOOGL) to enable shopping through Google Express using voice-activated service. The company is also trying to keep the prices of items more competitive.

Target has been also focusing on developing online business. In a bid to stimulate digital sales this holiday season, the company is strengthening relationship with Google by allowing customers nationwide to shop through Google Express, including voice-activated shopping. Recently, it waged war against other retail big-wigs by aggressively cutting prices on a range of items and launched curbside pickup program at 50 Twin Cities stores.

As you can see, there are plenty of reasons to be optimistic about the retail sector but what about investing in the space right now? Out of the stocks mentioned above, Wal-Mart carries a Zacks Rank #2 (Buy), while Amazon, Target, Macy’s, Best Buy and Gap carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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