Black Friday – early signs of pickup in consumer spending::Macquarie

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Black Friday – early signs of pickup in consumer spending

Event
􀂃 A slew of US retail sales numbers have come out post Black Friday (BF).
Overall early signs show a YoY pickup in retail spending, with consumers very
deal-driven, but spending more on themselves and having some pent-up
demand, according to retailers. As earlier promotions occur, US holiday retail
sales are shifting from a pure BF-specific focus to a more elongated holiday
season cycle, in our view. We remain positive on LCDs, memory and
smartphones.


Impact
􀂃 ShopperTrak – BF-only sales up modestly. ShopperTrak reported BF-only
(11/26) retail sales were up only a very modest +0.3% YoY (foot traffic +2.2%
YoY). The mild rise was partially due to earlier promotions as retail sales rose
+6.1%/6.2% in the first two weeks of Nov. Despite a slower BF, ShopperTrak
retains its original guidance of +3.2% growth for the 2010 holiday season.
􀂃 NRF – entire four-day weekend +6.4% YoY. By contrast, the National Retail
Federation said average spending rose +6.4% YoY for the four-day weekend
to US$45bn as foot traffic rose +8.7% YoY. Also, online sales jumped +16%
YoY on BF (Coremetrics), with PayPal’s online payments spiking +27% YoY.
Finally, NPD stated the number of purchases by shoppers rose +4% YoY.
􀂃 Anecdotal snippets from Best Buy. Best Buy’s CEO commented that estimated
foot traffic in its stores was up +8% YoY while door-buster demand for PCs and
TVs was “strong” and “incredibly strong” for e-readers (bodes well for E-ink) with
strength seen in smartphones, tablets and gaming. Cyber Monday, the allimportant
online day, will also be a key focus for Best Buy (same as major
retailers), with US$259 32-inch TVs and US$100-off Dell NBs as key offerings.
􀂃 Fair margin distribution key to healthy cycle. While some worry about low
retail prices, we note TV retail prices historically fall ~20%+ per year to drive
demand elasticity. The key to a healthy cycle is the three-way relationship
between TV brands, panel makers and retailer channels, in our view. In 2010,
panel makers are playing their part with a -23% ASP drop YTD (32-inch
panels). Coupled with TV brands’ vested interest to protect or gain market
share and retailers’ fierce competition in 2H10 (BBY/WMT/Amazon – all
offering promotions and free shipping), these three factors combined help to
set up attractive retail price points in the peak season to drive elasticity in our
view; we believe this three-way relationship applies to other sub-sectors (TVs,
NBs, PCs, smartphones) as well.
Outlook
􀂃 The sharp ASP declines witnessed in key components (ie, DRAMs/LCDs) in
2H10 are a key enabler for the current attractive retail price points in our
view and will help move unit volumes in the holiday peak season. With a
decent sell through, we see a bottoming out and recovery in these highly
cyclical sectors in 1H11 and are thus positive on DRAM (Hynix) and TFTLCDs
(LGD, AU Optronics, Radiant) as a result. Conversely, PC brands that
enjoyed a margin benefit in 2H10 from a price collapse in key components will
be similarly challenged in 1H11, and we are more selective in PC (prefer
Pegatron/Catcher). NAND flash plays (Samsung, Toshiba) will also benefit
from rising tablet and smartphone demand in 2011, and lastly, smartphones
and e-readers will continue to be key tech demand trends into 2011 and we
remain overweight on HTC and E-ink.