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The bad news: Consumers aren’t expected to spend more this holiday season. The good news: Our retail stocks should do well anyway. A new Morgan Stanley survey of 2,000 consumers found 37% plan to spend the same on shopping this year-end as they did in 2023, while 27% say they will spend less and 10% are not planning to shop at all. Just 25% of consumers plan to spend more over the next couple months. Shoppers also remain budget conscious, with 69% saying they will wait to see discounts before spending. On average, shoppers are looking for a sale of at least 30%. Some parts of the retail will be harder hit, Morgan Stanley said. The analysts are cautious on hardline goods like electronics, furniture and appliances, as well as broadline retailers that sell a wide range of goods like Target and Walmart. The outlook is better for so-called softline retailers (apparel) and brands because they have decreased inventory to protect profit margins. With spending in line with last year, this holiday shopping season becomes a market share story — a zero-sum game. Growth by one retailer will likely come at the expense of another. That makes it a stock pickers market. An exchange-traded fund (ETF) of retail stocks is likely to be stuffed with as many losers as winners. Given these data points, we feel pretty good about our exposure. We have owned discount retailer TJX all year on the view that inflation and belt-tightening could result in a trade down from full-priced retailers to discounters offering brand names at lower prices. TJX report earnings on Nov. 15 and we hope the strength we heard about at the start of the third quarter continued into the fourth quarter. We’ll update members on our position after the management’s call with investors. We maintain our 2 ratings on shares and would consider buying more on a pullback. Club name Costco (COST) is all about providing good value on the discretionary front. But the retailer also generates a large portion of sales from consumer staples, so we don’t see it coming under any undue pressure and would expect the company to benefit from holiday food shopping. Like TJX, Costco is currently trading near all-time highs, so we maintain a 2 rating and would look for a dip before adding to the position. Foot Locker (FL) has issues outside of the holiday season such as an inventory glut, an overreliance on Nike (NKE) and the need to shut down unprofitable stores. But the expected consumer focus on softlines within the goods category could provide something of a tailwind as Foot Locker flushes out some excess inventory. Same goes for embattled Estee Lauder (EL) which has been dogged by weak Asian travel retail. It’s a wait-and-see on both of these names. We are keeping our exposure small and even recently trimmed our stake in Foot Locker. We see no reason to change our 4 rating on both stocks ahead of the holiday season. Then there is Amazon (AMZN). The analysts did note that e-commerce has decelerated since the summer, setting up for a slower holiday, but we believe Amazon still have room to run. We maintain a 1 rating. a One rating, has more room to run. A couple of findings from the report bolster our position. First, the data points to higher-income shoppers planning to do more buying online, and Amazon is better-positioned than its peers. Second, Amazon has been making great progress on its fulfillment optimization plans so any pressure we do see on the timeline should be at least partially offset by margin improvement further down the P & L statement. Bottom line We are in a good position to benefit from how discretionary dollars will be spent this holiday season. Amazon stands to benefit from cost optimization and a rebound in its cloud service (AWS). TJX Companies offers the best value in retail along with an unmatched treasure-hunting experience that is sure to draw in shoppers. Costco, with its club membership model, benefits from offering a strong value on both discretionary goods and consumer staples by selling in bulk, along with the food everyone wants needs for holiday gatherings. Estee Lauder and Foot Locker are problematic and we’re keeping them both small into the season. Of the two, FL could break out if consumers spend more on footwear and apparel. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust is long.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
A shopper in the seasonal aisle of a Target store on Black Friday in Chicago, Illinois, US, on Friday, Nov. 25, 2022. US retailers are bracing for a slower-than-normal Black Friday as high inflation and sagging consumer sentiment erode Americans demand for material goods. Photographer: Christopher Dilts/Bloomberg via Getty Images
Bloomberg | Bloomberg | Getty Images
The bad news: Consumers aren’t expected to spend more this holiday season. The good news: Our retail stocks should do well anyway.
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