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Black Friday: Wal-Mart Faces a Triple Whammy

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As the retail giant tries to ramp up its profit margins, it is facing a potential employee strike, fears that Americans are too wary to spend heavily during the holiday shopping season, and the need to compete with rivals.

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Certainly, the pressure is on retailers like Wal-Mart and Target (NYSE:TGT) to offer big deals, and it will be tough to balancer that against the need to maintain margins. For many chains, it may end up as a kind of tug-of-war between maintaining same-store sales levels and market share on the one side and, on the other, keeping margins at a reasonable level. Either way, this period – from this week until the end of December – is a make or break time for Wal-Mart, Target, Kohl's (NYSE:KSS), and all their rivals. Sales account for a fifth or more of all their sales for the year, and if they don't do well, it will be hard for them to post respectable year-end earnings.

Investing in these stocks today may be a risky proposition as a result – at least, you'd be gambling that they pull it off and that price conscious consumers are less cautious than many fear they have become. In contrast, you may want to look at specialty retailers, such as apparel stores, like Gap Stores (NYSE:GPS) or Ann, Inc. (NYSE:ANN), which owns and operates the Ann Taylor and Loft chains, or footwear stores like Foot Locker (NYSE:FL) or Finish Line (NASDAQ:FINL), for instance. Even if consumers scale back on buying yet another flat-screen TV or other appliance, they'll be snapping up on-trend merchandise that these apparel stores have been delivering steadily all year, or buying the latest athletic footwear for their kids.

These specialty retailers fall in between the luxury retailers – those who count on affluent individuals to spend heavily – and the value-driven retail model that dominates at Target, Wal-Mart and JC Penney. Price and value are important, but if the Gap continues to offer great fashions at affordable prices, it doesn't have to offer "buy one, get one free" sales every week in order to move the merchandise. Of the 39 apparel retailers that Thomson Reuters tracks, Martis-Olivo expects 31 of them to report positive earnings growth, with some of the biggest gains in same-store sales and profits likely to come from Ann, Inc.

Without a resolution to the fiscal cliff dilemma, and absent any improvement in the unemployment rate, odds are that those retailers that cater primarily to the segment of the population for whom low prices are key will continue to struggle to respond to the competing demands of their investors and shoppers. Absent some clarity on these fronts – or more evidence that Wal-Mart and its peers are navigating these tricky waters more adeptly – it might be best to get your retail exposure this Black Friday from another source.

Editor's Note: This article by Suzanne McGee originally appeared on The Fiscal Times.

For more from The Fiscal Times:

4 Ways Retirees Can Survive the Fiscal Cliff

11 Foods You Can't Buy Anywhere Anymore

How Many Generals Does it Take to Screw...Up a Budget?


Follow The Fiscal Times on Twitter @TheFiscalTimes.
No positions in stocks mentioned.
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