Morgan Stanley Forecasts Soft Holiday Retail Sales

In a report published Thursday, Morgan Stanley analyst Kimberly Greenberger forecasted soft holiday retail sales. Greenberger commented, "We have a cautious outlook on the 2013 Holiday season for three reasons: 1) We continue to believe consumer confidence is unlikely to rebound anytime soon, 2) We expect weak mall traffic likely continues through November/December, and 3) We predict the most intense promotional Holiday environment since 2008." Morgan Stanley reported that the National Retail Federation (NRF) forecasts a 2% decrease in spending by the average Holiday shopper, projecting a +3.9% total Holiday sales growth versus last year. The NRF also expects a 6% decrease on Halloween spending. Overall total gift spending is expected to decrease 2.5% to $536.85. The analyst noted that consumers are reallocating spending away from apparel and towards durables. Greenberger estimated a +1.7% average comp store sales growth, compared with last years 3.8% growth. Morgan Stanley added that Off-Price Retail will take way market share from mid-tier department stores. Greenberger expects Michael Kors Holdings Limited

to have the best sales growth in retail for the 2013 Holiday season. The analyst wrote, "In this environment, Michael Kors (KORS) appears best positioned within the category and far less prone to discounting." Limited brands, Victoria's Secret and Bath & Body Works, should also be sheltered from discounting. Morgan Stanley reported that young women in their teens and twenties are purchasing from more "value-oriented fashion retailer (Forever 21, H&M, Zara), value-oriented branded retailers (off-pricers), or youth oriented retailers with a strong point of view or differentiated assortment (Urban Outfitters)." The analyst commented that American Eagle Outfitters, Abercrombie & Fitch, and Aeropostale will have lost volume to fill. Greenberger added that the colored denim sales fad, which drove sales last Holiday season, has already ended with nothing replacing it. The analyst added, "Our 3Q store checks suggest the mall has been ~20% more promotional y/y and we expect promotions to deepen through November and December. We predict the most promotional Holiday season since 2008." Morgan Stanley reported that due to the shortened Holiday calendar, promotional activity is expected to begin earlier and retailers could easily push the "panic button" when missing weekly milestones from the missing 6 shopping days.