December should bring some cheer to US storeowners

Chicago: December is likely to be a bit more cheerful for US retailers and their stocks as lower gasoline prices, a shorter holiday shopping season and pent-up demand help sales, despite the recession.

Many US retailers reported sharply lower November sales results for stores open at least a year, but the steep declines prompted some investors to bet the sector had hit rock bottom.

"There's no question there's some pent-up demand," Stifel Nicolaus's retail analyst Richard Jaffe said, noting that during the past three months, consumers had saved and paid off credit cards instead of spending.

But while December sales might look better when compared with November, 2009 is likely to be another tough year for the consumer, analysts said. That means investors pouring money into retail stocks that seem cheap should tread carefully.

"People are starting to feel better about things, but my question is, what has changed for consumers?" said Patricia Edwards, a retail consultant at Storehouse Partners.

Home values have fallen, credit has tightened and more people are losing jobs, Edwards noted.

Retailers may be helped somewhat by falling gasoline prices and more consumers are likely to shop for the holidays in December because Black Friday, the traditional kickoff to the holiday shopping season, fell later this year.

"We could see a little rally here because (the retail environment) is going to feel better, but I don't think it is going to be better until at least the middle of (next) year," Edwards added.

Retail stocks, as represented by the Standard and Poor's Retail Index, rose about five per cent last week after November same-store sales fell slightly less than expected. But the index pared its gains to trade only slightly higher at the end of the session and has lost 27.5 per cent in October and November combined.

December could also start out slow for retailers because consumers have learned over the years that prices will be cut closer to Christmas as stores eliminate inventory.

"I think the first half (of December) is going to be very slow," Morningstar analyst Joseph Beaulieu said. "Consumers, they've grown accustomed to playing chicken with retailers."

But Beaulieu and other analysts note retailers have gotten better at controlling inventories and warned that shoppers who wait might not find what they want.

Inventory control

That inventory control is one factor that will benefit merchants, some analysts argue. Retailers have also been closing stores and taking other steps to reduce overhead.

"Investors worry about the Christmas season - it gets priced negatively into stocks," Gilford Securities retail analyst Bernard Sosnick said.

"And then you look forward to next Christmas season and retailers are adjusting to the recession, lowering inventories, lowering expenses and they should be better positioned, even if there is adversity next year."