Retail ETF investors should enjoy the Donald Trump election win rally while they can as some brick-and-mortar stores are expecting lower fourth-quarter holiday sales.
The SPDR S&P Retail ETF (NYSEArca: XRT), the largest retail-related ETF on the market, gained 4.5% over the past week and 7.1% over the last month. However, the retail sector is up against some major hurdles this season and may under perform the broader markets ahead.
Weak four-quarter forecasts from Abercrombie & Fitch (NYSE: ANF) and Gap Inc (NYSE: GPS) raised concerns that apparel retailers are at risk for another tough holiday season as fewer consumers visit malls and dial back spending on clothes, reports Gayathree Ganesan for Reuters.
Abercrombie sales have declined for 15 consecutive quarters while those of Gap have decreased for seven quarters.
The holiday season is also expected to be challenging for all retailers including department store operators like Macy’s (NYSE: M) and Kohl’s Corp (NYSE: KSS).
Weighing on the retail sector’s outlook, the unseasonably warm winter has diminished demand for winter clothing.
“It is tough overall, and it is tougher for teen,” Wolfe Research analyst Adrienne Yih told Reuters. “It has been unusually warm so far, and everybody is selling jackets and cold weather gear and it will be difficult to sell them when it is 65 degrees.”
[related_stories]Analysts expect stores will struggle to sell winter merchandise and deal with excess inventory as they add new items for the season, which could cause more discounts and promotions, dragging on store margins.
Moreover, it’s not just brick-and-mortar retailers under pressure. Online retailers are also suffering. Adobe found that online retailers lost out on about $800 million in expected sales from the beginning of November through November 14 due to changing spending habits, writes Daniel B. Kline on Fox Business.
“Given the latest data, we are revising down our sales predictions for retailers. Similar to Brexit and its negative impact on consumer spending on durable goods in the U.K., U.S. consumers seem to hold off spending more online,”Adobe Digital Insight Principal Analyst and Director Tamara Gaffney said in a press release. “Instead of the expected 11% year-over-year increase, we expect growth to fall to single digits this year. Sales on Thanksgiving Day and Black Friday next week will be an important indicator of how much sales expectations need to be adjusted this shopping season.”
Consequently, the uncertain holiday season outlook could weigh on retail sector ETFs, such as XRT, which includes a hefty 25.1% tilt toward apparel retailers, 12.4% to internet & direct marketing retail and 7.3% to department stores.
For more information on the retail sector, visit our retail category.
SPDR S&P Retail ETF