The retail market improves as year draws to a close, and Amazon, Target and Walmart continue to attract outsize share of consumer sales.
Earlier this month, the music world said good bye to AC/DC cofounder and song writer Malcom Young. The band's iconic album, Back in Black, released in 1980, remains one of the best-selling albums of all time, with close to 50 million copies sold worldwide.
The song provides a good backdrop to our assessment of consumer sales thus far this quarter and as the year closes.
Retailers are feeling better after Black Friday as foot traffic and estimated sales were better-than-expected. Coming into November, estimates for brick-and-mortar traffic were running at a negative 7%-to-8% rate.
Early estimates from RetailNext showed traffic down roughly three percent. Although Thanksgiving and Saturday showed strength, Black Friday was somewhat disappointing.
While these numbers are watched very closely in the retail space, they are becoming less important to investors and analysts.
First, as we know, online commerce is growing meaningfully, up close to 20% over the weekend. Second, promotions for the holiday season started at the beginning of November, thus pulling some sales forward in the month. Finally, it is anticipated that the busiest brick-and-mortar shopping day will be on December 22. Last-minute shoppers won’t be able to order online and get delivery the Friday before Christmas, so retail foot traffic should be healthy.
As in past years, popular gifts will likely be consumer electronics and apparel. The most active destinations, both online and in-person, continue to be Amazon and Walmart. The infographic below captures a Goldman Sachs survey that asked individuals where they plan to spend the most money.
Source: GS Data Works, Goldman Sachs Investment Research, The Retail Economist
As customers and retailers moved to Cyber Monday, spending continued to grow. Adobe estimated that Cyber Monday generated over $6 billion is sales, which is $1.0 billion more than Black Friday.
Also, consumers completed more of their shopping through mobile devices. Fifty-three percent of traffic to retailers’ websites were from mobile devices, while only 40% of actual transactions were completed on those mobile devices. This is an improvement as checkout times decrease and ease-of-use improves. Also, having a great app is important.
Consumers primarily shop through their app when they are shopping on a mobile device, and they typically have only two or three shopping apps on their phones. Therefore, getting that “shelf space” on mobile devices is key for retailers.
Clearly, Amazon is the big winner in this trend, capturing 43% of every e-commerce dollar. Walmart, however, is a strong second and continues to expand. The company was able to grow its e-commerce business by 50% in the third quarter.
We believe that holiday sales this year should show healthy growth as consumer confidence remains at all-time highs and the unemployment rate continues to fall. As always, there will be winners and losers, and picking the right spots when investing is key.
The Coin Flip: From the global economy to what’s happening here in Oregon
While e-commerce has benefitted consumers globally, Amazon’s growth has had a huge impact in Oregon. Amazon will have three fulfillment centers up-and-running in 2018, creating over 3,500 jobs.
Portland has also thrown its hat in the ring for Amazon’s search for a second headquarters. This would bring 50,000 new jobs while investing over $5.0 billion. It may be a longshot to win, since over 200 cities have submitted proposals. Below is a table from a recent CNBC article showing Portland’s ranking compared to other cities with regard to a number of factors. As Senator Chuck Grassley once said, "What makes a child gifted and talented may not always be good grades in school, but a different way of looking at the world.”
Sources: America’s Top States for Business 2017, U.S. Census Bureau
Jason Norris, CFA, is executive vice president of research at Ferguson Wellman Capital Management. Ferguson Wellman is a guest blogger on the financial markets for Oregon Business.