Black Friday sales have already begun, and the holiday shopping season is almost here. Will consumers open up their wallets this year? Kim Parlee speaks with Juliana Faircloth, Global Consumer Staples Analyst, TD Asset Management, about the brands and retailers that are positioned to perform well this year.
Juliana, great to have you with us. I'm just going to jump right in. Some Black Friday sales have already started, like they always do early. But what is this Black Friday going to be like two years into COVID?
- Yeah, thanks for having me, Kim. And I think the bottom line this year is it's generally going to be quite a strong holiday spending period across the board. And that's really being fueled by continued strength with consumers, both US and Canadian consumers. We've seen consumer confidence come back really strongly, jobs are coming back, wages are rising, there's a big savings cushion, and overall, household net worth is up pretty significantly.
So we're looking for holiday sales in a range of kind of 7% to 10%. That's what the credit card companies are talking about, industry organizations. And that's quite a bit higher than the pre-COVID average, which was closer to 4%, 4.5%. So it's shaping up to be quite a strong holiday spending period just across the board.
- Now, is that despite the fact that we keep hearing about supply chain problems? And I have these visuals in my head of parents fighting over toys for their kids even more than usual.
- Certainly, the supply chain is probably the biggest investor concern for consumer companies heading into the holiday period. And that's been fueled by-- we've heard from companies like Nike guiding down their sales for the rest of the year because they're concerned about supply chain challenges. So certainly a super tough operating environment. We will see probably emptier shelves than we're used to seeing.
But a lot of companies are kind of going above and beyond to get product where it needs to be. So they've built up inventory early. They've changed or expedited their shipping routes. They've invested in different parts of the supply chain to build capacity. Some companies, like Walmart and Costco, have actually bought shipping containers and ships of their own to help fill their shelves. So hopefully that will help keep some of the fistfights in the toy aisle to a minimum this year.
- It's fascinating to hear what's going on behind the scenes on the supply chain. What about inflation? Because I think if your goods or the things you're making, the cost is inflated, you pass it on. It's OK. But if you can't, that's going to be a problem. So what do you see there?
- Absolutely. And inflation is really the symptom of the supply chain challenges that we've talked about. Demand is super strong. Supply can't really keep up. That drives prices higher. That drives input costs higher. So it's something that all consumer companies are facing and it's something that the market widely expects. There's a lot of margin pressure baked into estimates for the holiday season.
And so importantly, there's going to be some relative winners and losers. So we look for companies with great pricing power, which means they have a strong brand, they have a great customer value proposition, and hopefully have a track record of being able to raise prices without alienating consumers and forcing them to switch to other products.
I'd say the other common offset is on the cost side and just building a more efficient business. So it will be really important, I think, this holiday season to pay attention to companies under inflationary pressure that might start cost cutting into the muscle of their business rather than fat.
On the consumer side, it's really important to invest a lot in marketing, innovation, brand building. And if those functions start to get cut, it can hurt the business longer term. So that's something that we're watching.
- Give me some names, if you wouldn't mind, Juliana, in terms of maybe who you think is going to be resilient and may even do well with all these factors going on right now?
- Yeah, so just given that inflationary pressure and supply chain challenges, we tend to prefer companies in the discretionary space. They have a bit better pricing power. And we are looking for brands and products that have a bit of a more premium offering. So companies like Estee Lauder and Prestige Beauty, some of the luxury companies like Moncler, Aritzia in apparel, we view all of these companies to have strong pricing power and pretty resilient supply chains in order to manage through the season.
- We're going to leave it there. Such a pleasure. Thanks for coming on. We'll talk to you again soon.
- Thanks so much.