Will predictions for a strong holiday shopping season pan out?

The weeks between Halloween and Christmas make up the biggest retail shopping season of the year — and are an ideal time for market analysts to see just how strong consumer support is. 

Businesses are their busiest with marketing campaigns, enticing customers with hefty pre-holiday discounts. Many companies hand out employee bonuses at this time, boosting households’ disposable incomes. The holiday shopping season really hits its stride from late November, and then peaks post-Christmas when many stores cut prices even further once the holiday is over. 

Cyber is the new black

Nearly every US retailer offers discounts for Black Friday, which got its name in the early 1960s when police officers described the utter chaos as large numbers of shoppers stormed stores across the country on the day following Thanksgiving. In recent years, however, online sales have been outpacing brick-and-mortar sales, surging 22% last year to a record $9 billion.

In 2005, Ellen Davis, senior vice president of research and strategic initiatives for the National Retail Federation, noticed a recurring trend — increases in revenue and traffic online, happening on the Monday following Thanksgiving. She coined the trend Cyber Monday.

Although retailers have been capitalizing on the increased number of online shoppers for years, COVID-19 has been a huge catalyst in shifting consumers further away from in-store purchases. 66% of consumers say they increased their online spending activity during the pandemic, and the average order grew in value by 20-40%. Particularly with staffing shortages currently plaguing businesses, retailers are reducing their usual Black Friday store hours this year, as consumers continue to shop online. 

In 2020, shoppers spent $10.8 billion on Cyber Monday, beating out Black Friday to become the biggest e-commerce day ever. 

How might the shopping season impact retail stocks?

Black Friday and Cyber Monday are considered indicators for the entire shopping season, and strong sales during those days can boost companies’ stocks significantly. 

Despite rising prices and supply chain issues, American consumers continue to spend, resulting in strong retail numbers so far. Online sales on Black Friday alone are expected to increase by 5% to $9.5 billion, according to the Adobe Digital Economy Index.

This year’s earnings have been healthier than expected for many US retailers, with investors responding in kind. Companies such as Macy’s and Kohl’s recently saw their stocks surge after releasing positive third-quarter data. Analysts are optimistic that consumer demand will continue through the year’s end — Bank of America has projected a fourth-quarter retail sales growth of 4.9%.

In addition to retail stocks, payment technology could be another sector heavily influenced by the shopping season, especially considering changes in consumer habits. One rising trend in particular is “buy now, pay later” services offered by publicly traded fintech companies, such as Affirm (which has an exclusive deal with Amazon) and Square.

While things are looking good for retail, both online and in store, there are still many factors that could make investing this season a little more complicated. COVID-19 numbers are increasing (hopefully temporarily), and supply chain issues are still causing disruptions (my kingdom for a PS5). It’s important to remember that all investing involves risk and the best investor is the educated one. So, don’t be too confident about these rosy projections, and when you’re writing out your investment wishlist, make sure you check it twice.

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