BOSTON (CNN/Money) -
"Pass the gravy! Lots and lots of gravy!" For retailers -- online and off -- that's the refrain heard around tables this time of year, because this is when the vast majority of them make their profits.
And Monday morning mouse-pad quarterbacks (such as me, I suppose) sift through the reams of data trying to figure out what and how people are buying, and what it means to investors.
As my colleague Paul LaMonica expertly pointed out before Thanksgiving, most of the big-name online retailers already have strong holiday sales expectations baked into their stock prices by now. So jumping into an e-commerce stock during the holiday season is a fool's errand.
But the numbers I'm seeing thus far point to a couple of other trends that investors should take note of while considering a retail investment.
Trends to keep an eye on
First, despite the strong preliminary numbers for Black Friday's weekend sales, online retail -- heretofore a growth and momentum investor's playground -- is showing signs of maturing.
The year-over-year growth numbers provided by ComScore are impressive: 23 to 26 percent over holiday season 2003. However, that's less than the 30 percent gains from 2002 to 2003.
"That's a reflection of the maturity of the medium," says Graham Mudd, a senior analyst with ComScore. "It's harder to grow at the same rate or higher."
Second, 2004 looks to be the year in which the traditionally offline retailers finally legitimize their efforts in the online arena.
In fact, ironically enough, if anyone can be considered a growth player in e-commerce (aside from stalwarts such as eBay (Research), Yahoo! Shopping (Research), and possibly -- possibly -- Amazon.com (Research)), it is companies such as Sears (Research), Target (Research), and Wal-Mart (Research).
Look at the Black Friday online retail traffic data from Nielsen/NetRatings. The No. 1 site, not surprisingly, was eBay, with 5.4 million visitors. Amazon, at No. 2, had 2.6 million visitors. And No. 3 with a bullet? Walmart.com, with 1.4 million visitors. Five traditional retail shops placed in the top 10 this year.
And according to ComScore, the traffic growth is astounding: Visits to Target.com in October 2004 were up 61 percent from the same month in 2003. Sears.com was up 36 percent and Walmart.com was up 48 percent.
Wal-Mart's strong online showing may help to ease the miss the company suffered in its offline Black Friday sales.
"I don't think Wal-Mart will have as bad a year as everyone thinks they will right now," says Ulysses Yannas, an analyst with Buckman & Buckman. Wal-Mart's stock price is down almost 6 percent since Thanksgiving. It might be worth a small pickup if you believe analysts like Yannas, but I'd caution against it right now.
I'm sensing momentum behind a Wal-Mart backlash, with voices as far afield as James Cramer from TheStreet.com and Matt Drudge lambasting the company for everything from its product offerings to its ties to communist China.
Interpreting the numbers
So what do the online sales numbers mean for investors? As I mentioned before, growth and momentum tactics won't work in the online retail sector much longer. The numbers of sales and visits are getting too big to think that the sector will have many more years of healthy double-digit growth.
So it's time to start looking for companies that assist these brick behemoths in their rapid-fire online ascension -- and that don't already have holiday numbers baked into their stock prices.
Who might these companies be? Federal Express? Forget it -- the company is currently pushing against its 52-week high of about $95. The same goes for UPS, with its current high in the mid-80s.
No, you have to dig pretty deep to find retail-related companies that might still be priced on the cheap.
One such firm, Symbol Technologies (Research), may warrant a look, as long as you believe that it has righted its accounting. The company was forced to restate its earnings for the third quarter after inventory irregularities were exposed.
But it is in a prime position to assist the offline retailers -- it makes bar-code scanners and other supply-chain efficiency tools that can help clients manage the real-time online retail environment.
In spite of Symbol's recent woes, analysts are pretty bullish on the stock, with seven recommending a "buy" or above, and only two a "hold" or below. With the stock's price around $15 at press time, it was still below the analysts' average target price of $18.
This holiday season, barely a week old, is already proving that online retail is here to stay. That wasn't always the conventional wisdom of the past four or five years, which made for some aggressive growth and momentum investment in the sector.
As these early numbers indicate, it's time to rethink your approach to the sector, as the easy -- and quick -- money is getting harder and more expensive to find.
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