Woman Shopping Online wearing a Holiday Sweater

How Will Holiday Sales Be Different This Year (And Does the Market Care)?

November 23, 2020

Tom LimogesBy Tom Limoges
Asst. VP - Investments 

 

There are many unknowns this year. One looming question is how people can and should celebrate Thanksgiving? Many of the past traditions like large family gatherings and Black Friday shopping will look different because of COVID-19. Elderly family members might keep their distance, and typical shopping habits are moving digital.

As with many other parts of life, people are questioning things they thought they knew, and wonder how to move forward. One financial question we often get is, how do we gauge the health of the economy? One way, especially this time of year, is to follow retail sales.

Economists consider consumer spending to be highly important, as two-thirds of the economic activity in the US is consumer driven.  With the holiday shopping season set to kick off this week, retail sales data will be closely monitored to see how the pandemic is affecting consumer behavior.  From early indicators, this year will look very different from most years, which makes sense as nothing in 2020 has been what we expected it to be! Ultimately, how does this affect our investment decisions going forward?

Retail Sales in 2020

Total retail sales declined significantly earlier this year as pandemic fears reduced consumers willingness to open their pocketbook.  Then, lower interest rates and fiscal stimulus measures positively affected sales during the second quarter. In contrast, lower likelihood of a second round of near-term stimulus combined with rising COVID-19 cases negatively impacted October’s retail sales.  Retailers also reduced holiday hours compared to previous years, which could also influence this holiday’s sales.  Given all these factors, there is still much uncertainty as to the direction of retail sales over the next few months.      

 

Chart: Retail Sales

Online Sales

Over the last five years, online sales grew at a higher rate compared to most brick and mortar department and warehouse stores.  Online shopping offers consumers convenience as long as they can wait a few days for shipping.  Shopping online also reduces the number of contact points, as items can be delivered or picked up without ever entering a retail store.  Because of this, consumers began to shift spending towards online retailers as the number of COVID-19 cases grew.  Analysts believe this trend will continue into and beyond the holiday shopping season.  Cyber Monday, also known as Blue Monday, is reserved for the Monday following Thanksgiving and is often considered one of the largest online shopping days of the year. Many retailers have allocated even more discounted items for this year’s event. 

 

Chart: Online Retail vs. Location

Investment Implications

In 2020, retail stores with a large online presence have outperformed traditional brick and mortar department stores.  Grocery stores and consumer staple companies have outperformed restaurants and hotels.  As an investor, it is also important to understand that the stock market is always forward looking.  An example would be the market performance from the last two weeks; while the news on current cases is negative, the markets have rallied over the last two weeks on hopes that future retail sales will improve with an effective vaccine.  Some of the best performing stocks over the last few weeks have been the full year’s worst performers.  As always, a diversified approach is best.  

Thanksgiving In 2020

At Security National Bank, we remain thankful for what matters most — our customers and our employees who serve those customers. With the unprecedented challenges that the Coronavirus has presented this year, holiday shopping and Thanksgiving will look and feel a lot different for many. When out shopping, or browsing the web for your holiday gifts, remember to give thanks to those in your community by shopping locally.

We hope you are able to find time to enjoy the holiday, however you celebrate it.  Happy Thanksgiving from the Wealth Management Team at Security National Bank!


About the Author

Tom Limoges

Tom Limoges is an Assistant Vice President in Investments, developing investment strategies for Security National Bank's Wealth Management Division. He holds an M.B.A. from Wayne State (Neb.) College, and has been a member of the SNB Wealth Management team since 2002.