BMO Financial Group

BMO Financial Group
BMO Capital Markets

BMO Capital Markets

November 22, 2011 14:03 ET

BMO Capital Markets: Pent Up Demand and Low Inventories Mean No Huge Bargains for Shoppers This Holiday Season

Retailers should see moderate increases in sales

Thanksgiving is the new Black Friday

- No "hot product", but Xia-Xia hermit crabs, Barbie, Lego and Smurfs are all doing well

- Sales of Nintendo 3 DS to pick up

- Expect a good holiday season at the movies, with Puss in Boots, Happy Feet and Twilight: Breaking Dawn, Pt. 1, Alvin and the Chipmunks, Sherlock Holmes, Girl with the Dragon Tattoo, Mission Impossible Part 4 and Steven Spielberg's The Adventures of Tintin

NEW YORK, NEW YORK--(Marketwire - Nov. 22, 2011) - BMO Capital Markets expects the combination of retail incentives, low interest rates, and major retailers, such as Toys "R" Us and Walmart – opening their doors on Thanksgiving evening will encourage shoppers to a moderate increase in their holiday spending.

Sal Guatieri, Vice President and Senior Economist for BMO Capital Markets

  • "We've seen moderate increases in spending this year and expect spending growth to continue at about a two per cent pace in the holiday season. There is a lot of pent-up demand for discretionary items, which means we might see a better holiday season for retailers of non-essential products such as games. However, demand for big ticket items, such as furniture, is likely to remain soft given Americans' ongoing focus on debt repayment. As well, with retail inventories being so lean this year, shoppers might not see as much discounting as they had in prior years."

John D. Morris, Retail Apparel Analyst

  • "Retailers want to divert consumers' attention to deals and 'happy bargains,' such as gifts with purchase. This holiday will be one of 'rational exuberance,' both on the part of the retailer and the consumer.
  • From the retailer's standpoint, it's 'rational' in the sense that the inventory is very well planned with most retailers planning lower levels - down anywhere from 5 per cent to 10 per cent compared to last year." "This is because retailers have been enduring higher sourcing costs (labour from the Far East, the fabric costs, etc.) and really don't want to be stuck with a lot of carryover goods at the end of the season.
  • 'Exuberance' because we think retailers are advertising very good promotions and deals. They know the consumer is anxious and distracted with all the uncertainties swirling overhead, such as the Euro crisis and the political and U.S. budget strife at home."

Gerrick Johnson, Retail Toy Analyst

  • "We are expecting flat overall growth in toys and believe that retailers are being more cautious than ever this year. We are also seeing more of a shift towards promotions in-store, rather than in print media and on TV."
  • "There is no hot product this year, though Cepia's Xia-Xia hermit crabs, Barbie, Lego and Smurfs are all doing well."

Edward Williams, Entertainment & Leisure Analyst

  • "About 40 per cent of annual software unit sales and about 45 per cent of annual hardware sales will occur in November and December. Each week after Black Friday is more important than the preceding week and each week of December is equivalent to the third biggest month of the year in terms of video game sales."
  • "Looking into the holidays, we expect Call of Duty Modern Warfare 3 to drive growth for software sales to HD consoles in the balance of the year. We expect sales of Nintendo 3 DS to begin to pick up as we get closer to the holidays, but the overall dedicated game handheld market will remain under pressure through the balance of the year as smartphone and tablet games continue to gain traction especially in Western markets."

Jeffrey Logsdon, Entertainment and Gaming Analyst

  • "We expect this will be a pretty good holiday season at the movies. In the second and third quarters we saw box offices up nicely into the mid-single digits. We saw attendance up and certainly consumers demonstrated that if there are good movies out there, they're willing to go and this holiday season should be no different."
  • "This holiday we've already had Puss in Boots come out but we've got a number of movies that will kind of feed all genres of moviegoers: Happy Feet and Twilight: Breaking Dawn, Pt. 1 will probably get overwhelming response from consumers. As we move on through the holiday season you know Alvin and the Chipmunks are coming back, as are the next Sherlock Holmes movie and the thriller Girl with the Dragon Tattoo. We're going to see Tom Cruise in Mission Impossible Part 4 and Steven Spielberg's The Adventures of Tintin, which has already done well overseas."

To arrange interviews with BMO Capital Markets' retail analysts regarding their outlook on the 2011 holiday shopping season, please contact Martha McInnis at 212-702-1992.

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