Can Black Friday Actually Hurt Some Retail Stocks?

They call it “Black Friday” for a reason, and that reason isn't that it keeps encroaching on Thanksgiving and taking people away from their families. No, it's called Black Friday because it's the day retailers are supposed to go “into the black”, a term meaning essentially “turn a profit” named for the color of inks supposed to denote profit and loss. Yet Black Friday doesn't treat all firms equally; just ask the people who came up with “Small Business Saturday.” Some retailers this year, too, might also find that Black Friday is more of a hindrance than a help, based on one report.

Black Friday 2019 Picking Winners and Losers?

Word out of Reuters makes a clever—if not completely solid—case; Black Friday is expected to be a big deal this year, as it is pretty much every year. Those companies who fail to benefit from Black Friday, therefore, might be viewed by the market as weaker competitors. This, in turn, could have a drag on their market share, on their market value, and from there, their stock prices.

One of the biggest divisions the market is likely to see is between those companies that are adapting well to the increasing push to go online rather than just depending on foot traffic. This is especially true for stores who really aren't “stand-alone”—you'd see them near a road somewhere with their own parking lot—but are rather “mall-tenants.” Mall-tenants have taken a beating in the past, and those beatings aren't likely to slow any time soon. We saw as much recently with Gap NYSE: GPS shares, which are down over a third for this year, and this in a market that's explosively up.

However, more “stand-alone” stores have been shown rewarded in their share prices and earnings. Stocks like Target NYSE: TGT have been actively bulking up their online presence, and have reaped benefits accordingly. Our own studies find that Target earnings are “not a fluke”. While not every stand-alone store is doing well in the field—Home DepotNYSE: HD recently took a knock for missing its earnings, and Kohl's NYSE: KSS did likewise, though it's made some comebacks recently—we're certainly seeing some perceived advantages for these stores.

We need to look no farther than the gains seen recently at Walmart NYSE: WMT and Lowe's NYSE: LOW for proof positive there. Lowe's beat the consensus and even managed to raise its forecast in a time when Home Depot was losing ground. Walmart shares hit all-time highs a little over a week ago. It's clear that retail, in general, isn't faltering, but retail in some quarters most certainly is.

The Space Between Profit and Loss on Black Friday 2019

The Reuters report pointed to one excellent sign of a flagging store: the week after Thanksgiving, which it drew from Charlie O'Shea, a retail analyst with Moody's. O'Shea noted that if you're seeing big discounts on the Tuesday after Thanksgiving—one day after Cyber Monday—they likely missed the weekend, and with it missed one major opportunity to ramp up their sales.

Reasonable enough; Black Friday, after all, should be a fish-in-a-barrel sort of scenario, with people getting out in mass numbers to take advantage of doorbuster deals and kick off the holiday shopping season in grand style. A store unable to hit fish in a barrel is either not aiming properly or has a malfunctioning gun, metaphorically.

Yet we're also seeing a fundamental shift in Black Friday in general. After years of watching footage from shopping malls on Black Friday featuring, in some cases, a body count, it's not a huge surprise to see more shoppers opt to stay home and do their shopping online.

Certainly, online shops like Amazon have profited by this. More traditional stores have increasingly seen their physical presence as the ultimate in warehouse operation, offering ship-to-store options to allow customers to come to pick up their own goods at their own pace.

That's a welcome development for the busy consumer, and it's the consumer that ultimately makes a Black Friday winner. A retailer that can't appeal to consumers is likely dying, and the market's reaction to such retailers follows logically from there.