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Black Friday traffic falls as online gets bigger piece of spending pie
admin | December 4, 2020
This document is intended for institutional investors and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors. This material does not constitute research.
If COVID has changed anything, it’s clearly changed Black Friday shopping habits. Tracking retail’s biggest winners and losers over the crucial holiday shopping period can help differentiate performance for their bond investors as well.
The days of mayhem – with stores opening at the crack of dawn to long queues, and consumers hustling to snag deals – seem long gone, as many turned to the internet this year to secure coveted items at large discounts. While Cyber Monday typically is the day for online deals, this year promotions were being offered as early as Thanksgiving Day and many continued throughout the entire weekend. U.S retail foot traffic was down 18% year-over-year for the holiday shopping week ended 11/29/20. While the traffic decline is large at face value, online sales for Black Friday were up 22% year-over-year to $9 billion. Cyber Monday posted its largest haul yet with record sales of $10.8 billion, up 15% year-over-year. Online sales for the five-day holiday period accounted for 35.2% of spending, up over 8% year-over-year, the largest one year gain since 2014.
Exhibit 1. Share of Holiday Shopping Spend (2014-2020)
Source: Numerator; Bloomberg; APS
Traffic Winners and Losers
Department stores witnessed some of the largest traffic declines, over 50% for Macy’s (M) and Nordstrom (JWN), as they saved some of their strongest promotions for online. Additionally, both stores were closed on Thanksgiving this year which also helped to negatively impact the year-over-year traffic trend. Off-price retailers TJ Maxx (TJX) and Ross Stores (ROST) also saw double digit traffic declines, down 21.6% and 36.4%, respectively. While TJX currently has a small online presence, ROST has none therefore cannot offset lost brick and mortar sales with online sales. However, both stores witnessed a 7% increase in traffic from the prior week period, a trend they have been witnessing since stay at home orders were lifted and store hours were normalized. Furthermore, third quarter results came in better than expected for both off price retailers as traffic and basket trends improved at both, underscoring the consumer’s focus on value.
Dollar General (DG) was the traffic winner over the holiday period posting 14.6% growth year-over-year and up 3.0% from the week earlier period. As with the off-price retailers, DG has no online presence. DG’s percentage of consumables (over 75% of sales) helps to aid traffic while its expansion in seasonal and home/personal discretionary items has increased impulse buying as the consumer looks to consolidate trips. DG continues to trade behind Kroger (KR) in the 10-year part of the curve by roughly 15 bp, however in the 30-year part of the curve, DG trades through KR by roughly the same amount. We believe DG 10-year bonds should collapse closer to KR and trade at a similar level given the impressive growth.
Amazon Wins Online Holiday Shopping
While numbers somewhat differ depending on the source regarding Amazon’s (AMZN) share of holiday spend, one thing they all agree on is that AMZN is the clear winner this holiday week. It is estimated that AMZN’s share of online holiday spend this year is in the 17%-19% range. That means that essentially $1 out of every $5 spent this past holiday week was on Amazon.com. Additionally, the company recently noted that 2020 has been its largest holiday season of record. AMZN continues to see strong sales of its Alexa and Fire TV devices, which are anticipated to help pave the way for AMZN to grow subscription- based services, cloud gaming, home security as well as secure advertising dollars. AMZN’s solid balance sheet is likely to continue to strengthen over the next year as both sales and EBITDA margin continues to grow. This could prompt ratings upgrades at Moody’s and Fitch who both currently maintain positive outlooks.
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