Black Friday: US retailers prospects look gloomy in a forgettable year

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Investors in America’s retail sector would probably prefer to forget 2023. The S&P Retail Select Industry Index has climbed about 5 per cent, less than a third of the S&P 500’s gain. The industry trades on just 12 times forward earnings, well below the five-year average of 17 times.

Black Friday — the day after Thanksgiving — traditionally is America’s biggest shopping day of the year. But this time it will not provide much of a boost.

Not that inflation-weary Americans will refuse to spend. Expect good traffic through stores and online, drawn by Black Friday sales. Some 182mn people are predicted to shop between Thanksgiving Day and Cyber Monday this year, according to the National Retail Federation.

That is 15.7mn more people than last year and would be the most since NRF began tracking the data in 2017. Overall, holiday spending between November and December should increase as much as 4 per cent from last year to a record $966.6bn.

How much of those sales will flow down to retailers’ bottom lines is another story. Food and gasoline prices may have stabilised in recent months. But consumers remain choosy. Only good deals will tempt them spend any extra money.

Adobe expects discounts will hit record highs — up to 35 per cent off listed prices — this holiday season. Retailers will be tempted to cut prices to clear inventories and lock in revenues early, even at the expense of profit margins.

This will be especially true for department stores and speciality clothing retailers. Adobe reckons toys, electronics and apparel will receive the most aggressive price cuts.

This suggests that Gap, whose beaten down shares are up more than 60 per cent this year on the promise of a turnaround, could give back some of those gains. On the other hand, Walmart remains the safest bet. It has scale and strong positioning in food and value-priced good. It thus should benefit from cautious customers as the US economy settles in for a soft landing.