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Is Holiday Season Frenzy Fading for Retail ETFs?

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Retail sales and the holiday season go hand in hand. The period starts from late November and covers the entire December. With less than 100 days remaining until Christmas, retailers are on their toes with holiday season hiring to posting ads.

Several market researchers are coming up with holiday sales forecasts. U.S. retail sales are expected to rise 4.5-5% between November and December compared with the same period in 2018, according to Deloitte's latest annual holiday retail forecast. Solid job market and decent consumer sentiments should help holiday sales cross $1.1 trillion between this November and next January despite trade tensions.

The National Retail Federation expects holiday retail sales for November and December to increase between 3.8% and 4.2% this year. A separate forecast by AlixPartners shows retail sales growth of 4.4% to 5.3%.

Is the Holiday Season Shopping Euphoria Dying?

An analysis by Coresight Research shows that there is a trend of holiday sales shift in the last few years. Per the research firm, sales have been spread throughout the year of late rather than being focused on the holiday season. For instance, Coresight said total retail sales over the past three months rose 4.1% from the same three-month period a year ago.

Per the market researcher, “the holiday season accounted for almost 24% of all retailers’ sales in the late 1990s, but is closer to 21% today. And Coresight is expecting that percentage to continue to shrink.” Buying of jewelry has been impacted the most with the percentage of sales slipping from 33.4% in 1998 to 26.7% in 2018.

The surge in online shopping throughout the year, thanks to a deluge of deals, is slowing the momentum of holiday season buying, per the market researcher.

Amazon’s (AMZN) Prime Day in July, for example, has compelled more retailers like Target TGT, Walmart WMT, eBay EBAY, Nordstrom JWN and Kohl’s (KSS - Free Report) to offer steep discounts on a variety of goofs. This actually preponed holiday season buying. In fact, July saw a surge in shopping this year. Amazon smashed records with its annual Prime Day 2019 sales surpassing last year’s combined Black Friday and Cyber Monday sales (read: Consumer ETFs Win on Prime Day Becoming "Summer's Black Friday").

What Could be the Impact on Retail ETFs?

Investors should note that “2019 is the shortest possible holiday calendar scenario,” with six fewer days between Thanksgiving and Christmas than in 2018. If holiday sales fall below expectations, too much of inventory accumulation might weigh on retailers’ profit margins, we believe alongwith some other analysts.

Investors should thus keep a close tab on retail ETFs like Amplify Online Retail ETF IBUY, SPDR S&P Retail ETF XRT, VanEck Vectors Retail ETF RTH and ProShares Online Retail ETF ONLN (see all Consumer Discretionary ETFs here).

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