"I Was Expecting Many More People": Black Friday Tumbles To 3rd Spot In Busiest Shopping Days Of The Year

It has been an odd year for retail: with an estimated 6,000 store closures, and 65,000 fewer retail jobs than at the start of the year, many have said shorting retail, and especially malls, is the next "big short" trade. Indeed, one look at the performance of the mall heavy CMBX 6 BBB- tranche confirms that the bottom has fallen out of the legacy "bricks and mortar" space.

And yet, despite what should be a furious race to the bottom for market share by all still solvent non-Amazon retailers, this has not happened in what appears to be a strange manifestation of rational pricing. In fact, according to Market Track, last year the discounts were 6% deeper than this year across 17 categories in Black Friday circulars, the WSJ reports, and notes that only three of 10 major retailers the firm measured had better prices this year.

This was obvious to potential buyers like Delaney Dauchy, 15, who was shopping with her mother at a mall in Thousand Oaks, Calif., and told the WSJ that the deals aren’t as good this year. She recalled a seven-for-$28 deal on underwear at Victoria’s Secret last year; this year, she said it was five-for-$28. The Dauchys said there were smaller crowds than past years and Black Friday deals have been going on all week. “I’m not sure it seems extra special,” Anne Dauchy, 47, said.

?? Black Friday alert! ?? The 10 toys we"re tracking are cheapest at Target, where they cost $849.80. For more info: https://t.co/BVIi10s1A7 #BlackFriday pic.twitter.com/m4Ki5dnDuH

— WSJShoppingElf (@WSJShoppingElf) November 24, 2017

To be sure, there are still deals to be had: on Friday, retailers dangled the usual promotions, many of which were identical to last year, including 30% off at Coach and 50% off at the Gap. By Thanksgiving Day, shoppers were already taking advantage of the bargains. Kevin Krause, 27, was first in line waiting outside the Kohl’s store in Medford, Ore., Thanksgiving afternoon. The store opened its doors at 5 p.m., but by 3:15 there was already a line forming.

However, as the WSJ confirmed, lines at many other locations were far shorter - if present at all - compared to prior years, such as this Best Buy at the Fair Lakes Shopping Center in Fairfax Country, VA, where there was virtually no excitement opened this years, especially when compared to 2011.

Then (in 2011)...

... and now.

A similar comparison with Macy"s, which the WSJ compares between 2011 and now. The difference is self-explanatory.

Naturally, in light of the smaller bargains, the lack of shopper euphoria is understandable: yet what is surprising is why there aren"t bigger bargains? After all, neither the industry, nor the economy has turned on a dime. Speculating on the reason, the WSJ writes that "even as this year has proved one of the most challenging for retailers, analysts are predicting robust holiday sales, underpinned by rising wages, low unemployment and strong consumer confidence."

What rising wages? Aside from various "soft" surveys, and management expectations, wage growth remains abysmal, and real wage growth has been negative for three months!

What the WSJ probably means is that between near record low personal savings and a surge in credit card usage, Americans are spending like there"s no tomorrow... they are just not spending their own money.

Anyway, the always optimistic National Retail Federation expects sales to increase as much as 4%, to $682 billion in November and December, compared with the same period a year ago, which would make it the strongest season since 2014. The delusion about US households" spending power continued: "I’d be fully expecting people to be thinking about spending more, not be holding back as much as in the past,” said Andrew Duguay, a senior economist at Prevedere, a predictive analytics company.

Spending more of what?  Here is America"s savings rate: unfortunately people don"t have "more" to spend... 

And yet, maybe the NRF is on to something. In an interview with the WSJ earlier this week, Neiman Marcus Group CEO Karen Katz attributed a jump in the luxury retailer’s gross margin in the latest quarter to stronger full-priced sales. “We’ve gotten our inventory in perfect alignment with our sales,” Katz said.

That could change in the days leading up to Christmas. Shoppers have been trained to wait for deals—a practice made easier by online price comparisons. If they hold off on making purchases, retailers will likely slash prices more than planned as the season progresses.

To be sure, the lack of deals now may mean even greater discounts in the coming months:

In a Long Island, N.Y., Wal-Mart Thursday evening, Andre Valadas said it had been hard to snag one of the discounted Sharp TVs being sold at the store or at a Best Buy across the parking lot, but glanced at his phone often to text with friends nearby looking for a similar deal.

 

The 34-year-old software engineer expects prices to fall further. “I hope that if they don’t have deals right now they will have a them in a few weeks closer to Christmas,” Mr. Valadas said.

 

Retailers still have to contend with headwinds that include a shift in consumer spending away from apparel and accessories and toward dining, travel and entertainment, as well as the explosive growth in online sales.

The above is bad news for bricks and mortar retailers, who may have gotten a brief reprieve only to lose even more customers to online alternatives like Amazon.

And speaking of, Adobe Systems said online sales on Thanksgiving increased 17% as of 5 p.m. to $1.52 billion. It also expects online sales to increase 14% to $107.4 billion during the November-December period, compared with the previous year. Amazon said Thanksgiving was one of its biggest mobile shopping days, as orders placed through its app increased 50% over last year. Best selling items included Keurig coffee makers and its Echo speaker devices.

Indeed, no matter what happens to traditional retail, Amazon is likely to be winner. The online retailer, whose stock hit another all time high, is expecting a big Black Friday as more shoppers choose to skip the stores.

“If you go back to the creation of Black Friday, it was this amazing opportunity for customers to get great deals,” said Dorion Carroll, vice president of mobile shopping at Amazon, in an interview earlier this week. “So they would flock to the stores and all of that would be great, until it wasn’t. It got too crowded.”

In fact, it may come as a surprise to some, that Black Friday is no longer the busiest shopping day of the year. It ranks No. 3, behind the Saturday before Christmas and Cyber Monday, according to the consulting firm Customer Growth Partners.

Several dozen people still gathered in line early Friday morning to be the first inside a Target store in Houston when it opened at 6 a.m., though some said the crowds were notably smaller than years past. Once inside, shoppers like Freddy Cespedes, 42, owner of a small security company, found the best advertised stuff was already picked over the night before.

“I was expecting a lot more people,” said the Black Friday novice though he acknowledged he, like many people nowadays, primarily shops online.

Mall Tenants Seek Shorter Leases As America's Relics Of The 80's Teeter On The Brink

As if things weren"t bad enough for America"s mall owners, what with the having to filling their retail space with high schools, grocers and churches, it seems that retailers have grown so uncertain about the future of these 1980s relics that they"re only willing to sign 1-2 leases these days.

As Bloomberg points out this morning, leases renewals used to be 5-10 years in length but are increasingly only being signed with 1-2 year terms.  Meanwhile, thousands of stores are closing each year and it"s only expected to get worse over time.

After more than a dozen bankruptcies this year contributed to thousands of store closures, visibility for the industry is so poor that retailers are pushing for lease renewals as short as a year or two -- down from five to 10 years.

“You’re certainly seeing the renewals geared toward the shorter term, rather than the five-year renewal,” said Andrew Graiser, head of A&G Realty Partners. Retailers are now struggling to figure out how many stores they actually need, he added, and landlords are looking at them “with a much closer eye than they did before.”

Somewhere between 9,000 and 10,000 stores will close in the U.S. this year, said Garrick Brown, vice president of Americas retail research for commercial broker Cushman & Wakefield -- more than twice as many as the 4,000 last year. He sees this figure rising to about 13,000 next year.

“Everyone’s trying to figure out where the bottom of the market’s going to be,” Brown said. He estimates it could occur in 2018 or early 2019.

Not surprisingly, retailers are finding it difficult to sign long-term leases in an environment where 26% of malls around the country are expected to close their doors over the next five years.

Further complicating the lease-length dilemma is the question of which shopping centers will still be around in a decade. Cushman & Wakefield’s Brown sees about 300 of 1,150 U.S. malls shutting down in the next five years.

Perry Mandarino, senior managing director and head of corporate finance at B. Riley & Co., predicts that retail bankruptcies and restructurings will further accelerate in 2018. Some of this will be the result of a long-overdue shakeout of the surfeit of U.S. store space, but the downturn is also compounded by shifts to online shopping and consumers spending on experiences rather than physical stuff, he said.

Meanwhile, landlords are trying to fight back, though it"s a fairly difficult task both arms tied behind their backs.

Landlords “have their backs against the wall, so they’ve been fighting back, hard,” he said. “What you have is a game of chicken up to the end.”

“With all this excess inventory, landlords are trying to do whatever they can to keep malls occupied,” Agran said. “The more empty spaces, the more difficult it is to attract new tenants.”

Frankly, it"s shocking that Abercrombie wouldn"t jump at the opportunity to scoop up some prime square footage in this mall...it already has the Chili"s awning and everything.

UMich Consumer Sentiment Surges, But There Is One Big Footnote

On the surface, the latest, November, UMichigan consumer sentiment survey was good: printing at preliminary 91.6, it was far ahead of the October 87.2 number, and significantly ahead of expectations of an 87.9 number. The Sentiment erased the small October decline to climb to its highest level since mid 2016 and rise slightly above the 2016 average of 91.1. According to the report, the recent gain in sentiment was driven by an improved outlook for the economy. 

The consolidated number was the product of improvement in both the Current Economic Conditions index, which rose from 103.2 to 105.9, while expectations surged over 7% from 76.8 to 82.5.

However, there was a big caveat: as UMich admitted, "the November data must be accompanied by the proviso that it was collected before the result of the Presidential election was known late Tuesday."

We are happy to wager any amount of money that when the Final November UMich print comes out, it will tumble due to the previously observed openly political nature of the UMichigan sentiment "polling" operattion; and since Trump is considered by the conventional polling wisdom as negative for the economy, the final print will slide right back under 90.

Still, even without the headline sentiment print, there was another, more troubling observation. As the report authors note, "the most striking finding in early November was that both near and long-term inflation expectations jumped to 2.7% from last month"s record matching lows of 2.4%. These increases must be replicated before they can be taken to indicate a troublesome development; thus far, the data has simply repeated the March 2016 peaks. Nonetheless, it may be viewed as added justification for next month"s expected interest rate hike. The expected small increase in interest rates had little impact on favorable buying attitudes, and still supports a 2.5% increase in real consumer spending during 2017."

And since the Fed is inexplicably drawn to this particular data series when making its rate decision, we are confident that the December rate hike odds just jumped that much closer to 100%.