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Investors Should Wait for Retail's After-Christmas Sales

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Consumers hit the stores this weekend, but without their wallets.

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Here in China, Black Friday is obviously nonexistent, so I wasn't able to physically observe shopping trends. But according to a Citi report on Black Friday, it seems I didn't miss too much.

Store traffic was far stronger than last year -- 13% higher according to the National Retail Federation. However, browsing customers flooding the stores doesn't necessarily generate revenue growth. Being very price conscious this year, I suspect many shoppers may have simply been doing their price comparison homework, rather than actually completing a transaction.

Turns out, my suspicion was pretty accurate. There was a huge disconnect between the increase in traffic and decline in actual spending.

The average shopper shelled out just $343.31 over the weekend, down 7.9% from last year. And ShopperTrak RCT reported that initial retail sales on Black Friday clocked in just 0.5% higher than sales in 2008. Given that Black Friday sales fell a whopping 8% last year, the increase isn't impressive.

Hidden beneath the sobering numbers, however, good tidings can be found. Walmart (WMT), Big Lots (BIG), and other fellow discounters were less popular destinations this year.

Coming as a shocking, but pleasant, surprise, specialty stores made a dramatic comeback -- 66.8% of shoppers visited a specialty store like American Eagle (AEO) or Gap (GPS) in comparison to just 36% last year. In addition, traffic to department stores like Macy's (M) and J.C. Penney (JCP) also improved.

That said, shoppers are far from losing their sense of frugality. The NRF reported that one-third of shoppers arrived at their shopping destinations by 5 a.m. seeking early bird deals -- a huge jump from the 23.3% last year.

However, the increase in traffic to both department and specialty stores is a promising sign. It demonstrates that shoppers are at least interested in what these stores have to offer, even if they aren't ready to spend just yet. That's certainly a step forward from last year.

As I've stated before, I'd be very cautious buying into retailers in advance of the release of actual holiday sales. The industry as a whole has been rallying in anticipation of a huge consumer spending rebound. While consumer spending is stabilizing, we need to see an improvement in employment figures before we experience a full recovery in the consumer sector.

Black Friday is typically the heaviest day of shopping during the holidays, with stores providing some of the best discounts throughout November and December. If shoppers weren't lured in by the bargains offered this past weekend, it's unlikely sales will pick up as we draw nearer to Christmas.

Like consumers, investors interested in playing the retail sector should wait for the after-Christmas sales. I think we'll be seeing some serious discounting on both merchandise and equities.
No positions in stocks mentioned.
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