Retailers and e-commerce companies gear up for a strong holiday season - The Average Joe

    Retailers and e-commerce companies gear up for a strong holiday season

    Victor Lei — Head of Research

    November 25, 2021

    retail stocks

    November 25, 2021

    Department stores are putting up a fight — and they’re showing no fear towards e-commerce — the trend putting their peers out of business. Strong credit card and banking data point to a strong holiday season except this year, there’s a big difference in where they’re spending.

    Bring back the department store

    In the third quarter, compared to the same period last year, e-commerce sales were up 6.8% while retail sales (excl. e-commerce) were up 14.1%.

    2020 was a scary year for retailers — with 30+ retail bankruptcies and 9,500+ store closures. Remaining ones thrived — with many trading above pre-COVID levels. In 2021, department stores: Macy (NYSE:M) — is up 196% and Dillard’s (NYSE:DDS) is up 550%.

    Retailers reported surprise 2021 profits after years of losses, inadvertently benefiting from supply chain issues — forcing them to sell excess inventory which impacted earnings for years.

    • To maximize sales, retailers over-order inventory to meet demand. Unsold inventory land in discount racks — negatively impacting margins.
    • If retailers revert back to old habits, high margins might not stay and neither will their recent stock price gains.

    The better department store: e-commerce

    2021 wasn’t kind to e-commerce companies — with many falling alongside high-flying growth stocks which are down 30-70% from 2021 highs.

    The Global X E-commerce ETF (NYSE:EBIZ) is down 1.26% in 2021, after falling 18% from its 2021 peak. But not all e-commerce companies struggled in 2021:

    • Etsy (NASDAQ:ETSY) — the gifts and handmade goods marketplace — is up 72%.
    • eBay (NASDAQ:EBAY) — the e-commerce marketplace — is up 41%.

    The common thread: These companies don’t rely on the global supply chain impacting retailers with manufacturing in Asia. It’s much easier to dodge high shipping costs and delays when you make your own products or sell used ones.

    Investors: Don’t forget the OG

    Jeff Mills of Bryn Mawr Trust sees a potential breakout in og e-commerce company, Amazon (NASDAQ:AMZN):

    • Amazon has been the worst-performing FAANG (MAANG?) stocks in 2021 — up only 12%.
    • Sales slowed to 11% in the recent quarter but its massive e-commerce logistics system could give it an edge over other retailers this holiday season.

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