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BMO Capital Markets

November 25, 2014 08:00 ET

REPEAT-BMO Capital Markets: Holiday Retail Outlook

- Higher employment and strong U.S. dollar to support consumer spending

- All eyes on Apple iPhone 6 sales, expected to hit 65 million units

- Activision's Call of Duty, Ubisoft's Assassin's Creed and Far Cry, and Take-Two's Grand Theft Auto V seen as likely best sellers

NEW YORK, NEW YORK--(Marketwired - Nov. 25, 2014) - With Black Friday and Cyber Monday fast approaching, analysts say the outlook for the busiest shopping days of the year is promising for many retailers, buoyed by expectations for strong consumer holiday spending. BMO Capital Markets experts forecast the following trends for the holiday shopping season:

Michael Gregory, Deputy Chief Economist & Head of US Economics:

  • More jobs have been created so far this year (2.3 million) than in any comparable period in more than 8 1/2 years, providing income support for consumer spending ahead of the holiday shopping season despite sluggish wage gains.
  • Compensating for slow wage growth, U.S. dollar strength is helping paychecks to stretch a bit further, driving down the cost of imports. Consumers' pocketbooks will also be bolstered by declining gasoline and heating oil costs, both at their lowest levels in nearly four years.
  • An increase in home prices and equity prices have boosted consumer confidence to the highest levels in seven years.
  • All of the above point to a solid holiday shopping season in 2014.

Gerrick Johnson, Toy Analyst

  • U.S. toy sales will hit $22 billion at retail, rising 2-3 per cent this year. Sales in the $85-billion worldwide toy market are expected to grow by about 5 per cent.
  • Toy sales have rebounded in 2014, with hot products like Frozen toys generating sales in retail stores and online to find products and facilitating both impulse purchases and discovery of new products.
  • Retailers are expected to bring in more fresh goods as they respond to lean inventories in North America.
  • Toy companies are bringing more innovation to market, relying less on retro toys and classics and signaling a willingness to take more risks this year.
  • Outdoor toys and arts & crafts appear to be benefitting from a "no-screens" trend, where parents are trying to find activities to get their children away from tablets and smartphones.
  • Interactive figures like Skylanders and Infinity continue to be strong; but traditional action figures are also performing well, benefitting from action movie releases this year.
  • Other trends in toys include robotic pets, 'gross out' toys, small collectible figures, and make-your-own food.
  • Fashion dolls, games, and plush are the weaker performing categories in the toy industry right now.

Keith Bachman, Entertainment Hardware

  • Apple Inc. revenue is driven more by product cycles than seasonal patterns, including the holiday selling season. We expect the larger screen iPhones to do very well to coincide with the holiday selling season.
  • We project that Apple will sell approximately 65 million iPhones in the December quarter, which we think could include approximately 15 million iPhones in greater China.
  • We think Apple will likely end the December quarter with unfulfilled demand for the larger screen iPhone 6 Plus. We believe that Apple started with modest availability of iPhone 6 Plus phones and has not been able to catch up.
  • We have fairly modest expectations for Apple Pay near term. At this point, not enough retailers have signed up to make a meaningful impact on either consumer purchase patterns or Apple revenues. Longer term, we think ease of use and security will sway both consumers and retailers to use Apple Pay.
  • Finally, we predict Macs will do well in the holiday season, helped by very enticing and competitive products as well as a slowdown in interest in purchasing tablets including iPads.

Edward Williams, Digital Entertainment and e-Commerce

  • The fourth quarter is far and away the biggest quarter of the year for video game companies, as publishers launch major new releases and consumers buy those highly anticipated games.
  • We expect the holiday shopping season to be driven by a handful of titles that rapidly rise to the top of best-selling charts.
  • Following last year's debut of the new consoles, this year we expect Sony and Microsoft to continue experiencing a lift in hardware sales, relative to prior cycles-helping to increase the addressable market for software sales.
  • Video games are increasingly being sold via online distribution - a trend that we expect to persist for an extended period of time, allowing publishers to experience higher-margin sales and an extended period of margin expansion.
  • In particular, as we look to the holidays, we expect games such as Activision's Call of Duty, Ubisoft's Assassin's Creed and Far Cry, and Take-Two's Grand Theft Auto V to be among the best-selling items.
  • Within our e-commerce coverage universe, we continue to see more commerce move online. We see one of the factors mitigating growth of the category to continue to be delivery, as consumers stress the model with late ordering.

For questions or to arrange for an interview please contact Martha McInnis at Martha.Mcinnis@bmo.com, 212-702-1992. In Canada, please call Pav Jordan at Pav.Jordan@bmo.com, 416-867-3996.

About BMO Capital Markets

BMO Capital Markets is a leading, full-service North American financial services provider. With more than 2,300 employees operating in 29 locations, including 16 in North America, BMO Capital Markets offers corporate, institutional and government clients access to a complete range of investment and corporate banking products and services. BMO Capital Markets is a member of BMO Financial Group (NYSE:BMO)(TSX:BMO), one of the largest diversified financial services providers in North America with total assets of more than CDN $586 billion and approximately 47,000 employees at July 31, 2014.

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