Will Retail Sales Explode Into Year’s End?

The Commerce Department recently reported that U.S. retail (NYSEARCA:XRT) sales increased at their slowest pace in five month for November.  Total U.S. retail sales increased only 0.2 percent, following a 0.6 percent increase in October.  It was a sobering report that quickly dampened all the Black Friday record sales hype.  However, a new survey suggests that there is still plenty of shopping to be had this holiday season.

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Even though Christmas is just around the corner, more than half of shoppers still need to complete their holiday shopping lists.  According to the National Retail Federation’s 2011 Consumer Intentions and Actions survey, as of the second week in December, the average person has completed 46.5 percent of their shopping, less than the 49.5 percent the average person had completed by the same time last year.

“For consumers, the holiday season is more of a marathon than a sprint, typically starting the season strong, pacing themselves in the middle and gearing up again in the final stretch, a trend retailers expect every year,” explained NRF President and CEO Matthew Shay. “As the hours tick toward Christmas, retailers still have a few tricks up their sleeves to entice even the most extreme procrastinators looking to cross the final names off their lists.”

Several retailers such as J.C. Penny (NYSE:JCP) and Gap Inc. (NYSE:GPS) are already relying on discounts to spur sales, as the labor market and incomes continue to struggle.  On Wednesday, electronics retailer Best Buy (NYSE:BBY) reported a miss in third quarter earnings due to promotional activity and shrinking margins.  Joel Bines, Managing Director of consulting firm AlixPartners said of the news, ”I think Best Buy is the canary in the coal mine. I think we’re going to hear retailers across all categories, with the exception of luxury, reporting depressed margin for the holiday time period.”

With more people expected to complete their shopping lists in the coming weeks, the NRF has increased its holiday sales forecast to 3.8 percent growth, compared to an earlier forecast of 2.8 percent growth.  While some may be quick to speculate on retail stocks such as Aeropostale (NYSE:ARO), Abercrombie & Fitch (NYSE:ANF) and Urban Outfitters (NASDAQ:URBN) and others, investors need to remember that the consumer is still feeling the affects of the Great Recession.  Lingering high unemployment and record breaking food stamp recipients leaves little room for a stellar shopping season.

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