Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

Quite how the biggest retail event of the year will go with large sections of the British high street closed is hard to gauge. Ready or not though, Black Friday week is now just hours away and it could help seal the fate or fortunes for retailers up and down the land.

To believe this Black Friday week will be like no other before it doesn’t require a crystal ball. With non-essential high street retailers closed in England and in large parts of Scotland, Black Friday 2020 will mostly be an online event.

The scene is set by data from the British Retail Consortium showing online non-food sales grew by an average of 39.2% in the three months to the end of October compared with the same period in 20191.

Given this period was just before the current lockdown, online sales growth this month could be even greater. VoucherCodes.co.uk and the Centre for Retail Research expect online sales next weekend to be more than 50% higher than in 2019, even as sales overall dip by about 12% to £7.5 billion due to store closures2.

The latest consumer technologies are normally in focus during Black Friday week, and this year is unlikely to be much different. The heavy usage of domestic consumer appliances during a year of lockdowns and travel restrictions is only likely to boost the demand for laptops, phones, TVs, gaming consoles, fridges and exercise bikes.

That ought to present an open goal to sellers with a strong online presence such as Dixons Carphone, AO World and Argos (owned by J Sainsbury), alongside ubiquitous Amazon.

That said, consumer spending power remains difficult to gauge. With unemployment rising, job insecurity will undoubtedly play its part in undermining sales. On the other hand, people in work may find they have more to spend than usual, owing to a lack of opportunity to do so earlier in the year and wages growth of 1.3% in the July-September quarter3.

Success will require more than just having the right product. A slickly operating website able to handle large numbers of customers at peak times and a delivery system to match as the orders ratchet higher will also be important success factors.

We should spare a thought for the many non-food retailers without a robust online presence, for whom the near term outlook remains bleak. The BRC estimates that the current lockdown in England could be costing retailers £2 billion of sales per week4.

The first three weeks of December pose challenges too, with shoppers unlikely to want to gather on the high street in large crowds due to the health risks.

However, a limited number of retailers staying open during the lockdown – Halfords, for example – will also be hoping to tap into a Black Friday rush. Halfords, which announced a 116% rise in interim pre-tax profits this week, is already headlining deals on electric scooters and dash cams5.

In the US, where most large retailers have substantial digital operations, a similar picture is emerging of a further transition online. The National Retail Federation says that 96% of the retailers it surveyed last month expect their holiday sales to increase this year6.

Adobe Analytics, which uses artificial intelligence and machine learning to extrapolate past trends in retail, is expecting consumers using smartphones this holiday season to spend 55% more than in 2019. Total online sales are forecast to be up by about a third, to US$189 billion7.

That’s heartening news for Amazon and other online specialists, but is less good for clothing retailers and department stores, which remain partially dependent on local shoppers and have understandably struggled so far this year. The welcome news for them is that American consumers plan to spend US$998 on holiday gifts and other items this year, just US$50 shy of last year’s total spend8.

In a busy week for retailer results in the US, there was a fairly clear dividing line between essential retailers like Walmart, Target, Home Depot and Lowe’s and discretionary stores like Macy’s and Kohl’s, with the former four benefitting from consumers staying at home, stocking larders and improving their homes.

However, and despite falling sales in the third quarter, good cost management, lean inventories together with raised hopes of the rolling out of a coronavirus vaccine in early 2021 helped shares in Macy’s and Kohl’s record decent gains for the week8.

A number of funds on Fidelity’s Select 50 list have a consumer growth theme running through them, whether that’s related to retailing in the developed world or, in emerging markets, growth in consumerism more generally.

Exposures to both domestic and world consumers can be found, for example, in the Rathbone Global Opportunities Fund (Amazon, PayPal, MasterCard, Ocado) and the JPM US Select Fund (Amazon, Apple, MasterCard). Nintendo is currently one of the largest holdings in the Lindsell Train Japanese Equity Fund.

Source:

1,4 BRC, 11.11.20
2 VoucherCodes, 16.11.20
3 ONS, 10.11.20
5 Halfords Group, 18.11.20
6,8 NRF, November 2020
Adobe Analytics, 29.10.20
8 Bloomberg, 20.11.20, Macy’s, Inc., 19.11.20, and Kohl’s Corporation, 18.11.20

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. Select 50 is not a personal recommendation to buy or sell a fund. The Rathbone Global Opportunities Fund and Lindsell Train Japanese Equity Fund invests in a relatively small number of companies and so may carry more risk than funds that are more diversified. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

Topics Covered:

Active investingEurope;  North AmericaUKVolatility

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