Just as consumer confidence has fallen to an all-time low, the retail industry is entering a crucial period. Nowadays it starts right after the American holiday of Thanksgiving, which we know as Black Friday. This day off for many Americans is traditionally the start of Christmas shopping, which resulted in a day full of attractive discounts to attract as many customers as possible. Buying stuff has been further boosted by online stores, which can conveniently spread their offers (and deliveries) over several days. And so Cyber Monday, the Monday after Black Friday, is now also a marketing term and, in addition to clothing, consumer electronics are particularly popular during this period.
In recent years, Black Friday has been a symbol of mass consumption. These are expenses that can give many retail companies a boost this year, especially now that the economy is cooling down and central bankers are predicting a recession. But do retail stocks also benefit from this? Out an analysis a 2017 survey of business channel CNBC found that retail was the best-performing U.S. sector in the two weeks leading up to Black Friday over a ten-year period. Retail stocks in the leading S&P 500 index returned 5 percent, versus an average return of 3 percent for the entire index over the same period. A pattern that continued in 2018 and 2019, but was broken in 2020, when the retail sector faced lockdowns.
In addition: the measured Black Friday effect on the stock market is relatively short-lived, because the analysis covers a period of two weeks. And the investor who avoids risk prefers to invest for the long term and is not distracted by these kinds of short-term effects. Charles Allen, retail analyst at Bloomberg Intelligence, calls the Black Friday period a snapshot. According to him, the spending pattern around Black Friday should be viewed over a longer period. “More as part of the total sales in high season. And in that five to six week period there will always be differences,” says Allen.
What Black Friday is, according to stock market analysts, mainly: a gauge for consumer sentiment. In addition to company results, that sentiment is a factor that contributes to the rise or fall of stock prices. The question that hangs over the market this year: will the pessimism among consumers also lead to fewer purchases in the coming weeks?
The fourth quarter is an important quarter for the retail sector. “In that sense, the push of Black Friday is important,” says Charles Kalshoven, macro-economist and strategist at pension investor APG, which manages more than 600 billion euros. “Also as an indication for the further course of the fourth quarter. Because consumption growth stagnated in the third quarter.” This stagnation was mainly due to the fact that people bought less durable goods, such as furniture and cars.
A difference with the financial crisis of 2013, the previous low point in consumer confidence, is that unemployment was much lower at the time. Moreover, the relationship between what consumers say and what they do is not one-to-one, says Kalshoven. “One reason not to be too gloomy is that the prospects for purchasing power are, on average, good. The necessary compensation measures will be taken by the government and wages in the Netherlands should be able to beat the falling inflation next year.”
If Black Friday proves to be a damper for retail companies, that is not a problem according to Kalshoven. “We have high inflation and we will get it down sooner if we moderate our consumption now.”
A version of this article also appeared in the newspaper of November 21, 2022