Weekly Financial Review #24

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Thanksgiving Up The Ghost

After last week’s Thanksgiving holiday came a slew of Black Friday sales. And with Cyber Monday still to come, you’d perhaps think retailers would be having a great time of it. Alas, no.

 

Recap

  • In October, Amazon surprised investors by lowering its sales forecast for the quarter. > Read our story

  • At the start of November, Apple disappointed investors by lowering its own sales forecast. > Read our story

  • Alibaba showed that it wasn’t just a US phenomenon in November as it cited the Chinese economy for its lowered sales projections. > Read our story

  • Third-quarter results from Walmart and Macy’s beat expectations but investors sold their stocks anyway. > Read our story
  • Last week, mixed results from Target, Lowe’s, Kohl’s and Best Buy may have caused investors to sell off all retail stocks. > Read our story

 

Connecting The Dots

For the first three quarters of the year, all that glittered was gold for retailers, thanks to falling unemployment, rising wages, and tax cuts – meaning consumers had a little extra cash to splash. However, consumers might be starting to feel the pinch of rising interest rates, making borrowing to spend more expensive. It’s leading some retailers to expect a less merry end to 2018, while investors had comparatively got themselves into a holiday shopping frenzy by way of higher expectations.

China’s economy is in the long and arduous process of becoming more consumer-oriented. Currently, Chinese consumer spending accounts for around 40% of the overall economy, but its government would like to see that figure closer to the 70-80% boasted by the US and UK. The country’s trade war with the US, therefore, has rattled its economy, which still relies on exports. Although Alibaba blamed lagging consumer spending for its lower sales forecast, the company still broke records in its Singles’ Day sales event this month.

And while it’s rare to see Apple’s products on sale at a discount, the company’s lowered iPhone production in the face of weaker demand mean that they’ll find their way into even fewer Christmas stockings – perhaps as would-be customers switch to cheaper phones from competitors with global ambitions, like Xiaomi.

 

Takeaways

  1. Tech companies are at the center of discounting.

    While Amazon might be able to take some of the credit for reinvigorating Black Friday sales in the online realm, tech companies might, ironically, be the reason for less aggressive discounting in recent years. As traditional retail companies spend big on e-commerce and inventory management technology, they’re getting better at buying the right stuff at the right time – so they’re left with less unwanted stock that they’re forced to discount if they want to get it out the door or warehouse at all. It might be bad news for bargain hunters, but it’s a boon for department stores like Macy’s, which reported better-than-expected profit thanks to lower discounting.

  2. Investors roasted retail stocks.

    Last week, shares of US retail stocks fell more than 10%. Some investors may be selling their best-performing stocks, hoping to lock in their #gainz for the year. Other investors, perhaps faced with companies having to keep up the high spending for several more years in a bid to compete with the e-commerce giants, may have decided that the risk of failure isn’t worth any potential reward, and chosen to sell their shares.

 

Also On Our Radar

On Thursday, South Africa’s central bank surprised economists by announcing an interest rate increase. South Africa’s economy is shrinking – in fact, it’s in a recession. Since higher rates make borrowing more expensive, companies might not spend as much as they otherwise would, leading to even less economic growth. Central banks usually lower interest rates to get economies growing again, but South Africa’s central bank likely believes that inflation running too high is an even bigger risk to the economy’s growth (by making products unaffordable, strangling spending altogether), hence the increase.

 

Reading For The Weekend

  1. The National Retail Federation shares its outlook for US retail spending: Read more
  2. The International Monetary Fund explains China’s economic rebalancing: Read more

  3. Everything you need to know about Singles’ Day, from ForbesRead more

 

 

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Company No. SC588686
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© 2018 Prosper Social Finance
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