Retailers, Shippers Could Benefit from Unexpected Holiday Rush

While shippers are keeping supplies low as consumer sentiment wanes and the economic recovery stalls, retailers could be facing a last-minute rush to restock their shelves come holiday shopping season. In 2009, companies greatly underestimated sales, then had to expedite merchandise to stores before Christmas in order to meet improving demand.

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With retail sales falling flat last month, according to a Commerce Department report, following a 0.3% gain in July that was smaller than expected, retailers aren’t preparing for a big shopping season, nor are consumers, as consumer confidence fell to its second-lowest level this year in the week ending September 11. According to a survey, the number of households saying it was a bad time to spend was the highest in three years.

So shippers are preparing for a “muted” holiday season, said Benjamin Hartford, transportation analyst at Robert W. Baird & Co., a Milwaukee-based investment bank. The combined inbound-container volume at ports in Los Angeles and Long Beach fell 9.4% last month from a year earlier, following declines of 2.3% and 4.6% in July and June, respectively. The ports account for roughly 40% of total U.S. imports.

The slowdown is a signal that retailers are “stocking to weaker sales expectations”, said Edward Leamer, chief economist for the Pulse of Commerce Index for Ceridian Corp. The ratio of retail inventories to sales was 1.34 in July, but in December 2009, the late rush for holiday goods led to a 3.5% annual jump in the Ceridian-UCLA index after 22 months of declines, and Leamer says the same could happen again.

Truckers are already pricing for low consumer spending and retail demand, which means, “If things improve, there could be upside for these stocks,” said David Ross, a Baltimore-based transportation analyst at Stifel Nicolaus & Co. He maintains “buy” recommendations on Arkansas Best Corp. (NASDAQ:ABFS), Con-Way Inc. (NYSE:CNW), Old Dominion Freight Line Inc. (NASDAQ:ODFL), and Roadrunner Transportation Systems Inc. (NYSE:RRTS).

And if demand doesn’t spike before mid-October, retailers may be forced to ship by air rather than by sea, benefiting companies like FedEx (NYSE:FDX) and United Parcel Services Inc. (NYSE:UPS). “A slow start to what’s normally the peak shipping season suggests the airfreight businesses of FedEx and UPS may benefit if demand picks up closer to the holidays,” said Ross.

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Still, most retailers are pulling back on projections for the holiday shopping season. J.C. Penney (NYSE:JCP) recently announced such plans at a conference hosted by Goldman Sachs (NYSE:GS), while Li & Fung Ltd., the world’s biggest supplier of clothes and toys to retailers like Wal-Mart (NYSE:WMT), has said that “things have slowed down a little bit” in the past few months, despite having been “okay” at the start of the year.