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'Tis The Season for Discount Digging

23 November 2013 in Trading Ideas

Don’t be fooled by the 1 million PlayStation 4 video-game consoles that Sony sold earlier this week in the device’s first 24 hours.

The real prize this holiday season is a bargain.

A recent holiday survey by Deloitte showed that 44% of respondents said they planned to purchase holiday gifts at value/discount stores.1

What’s more, 73% of total holiday spending, on average, will be influenced by coupons, according to the survey.

Consumers’ craving for low prices is nothing new, and once again, the top discount retailers are set for another battle. A Bloomberg survey recently found that Amazon’s prices were an average of 3% lower than Wal-Mart for a basket of 87 toys.2

But when third-party sellers on Amazon’s Marketplace were included, Wal-Mart’s products were 1.3% cheaper. Lost in the hand-to-hand combat, of course, is how difficult it may be for other retailers to encroach the market share of the top two titans.

“Being competitive on toy prices is crucial to drive market-share gains during the holiday season,” said Bloomberg Industries analyst Poonam Goyal.

Of course, discount shopping isn’t just limited to the holidays, and much evidence suggests that both consumers and investors have been benefiting from low-cost retail.

discount nationThe Discount Nation motif has increased 4.5% in the past month and 29.9% in 2013. The S&P 500 is up 3.6% over the past month and 25.8% so far this year.

Earlier this week, TJX Cos., the operator of TJMaxx and Marshalls (and whose stock comprises a 13% weighting in the Discount Nation motif) surpassed Wall Street’s profit expectations, as sales rose 9%, helped by a 5% rise in same-store sales.3

Interestingly, TJX noted that this year’s Christmas shopping season contains six fewer post-Thanksgiving shopping days compared with last year, which could set the company – and other retailers – up for potential disappointment when holiday-season sales are released.

This year, taking a wider view of performance may allow some investors a chance to add to their portfolios or enter the sector if the rally pauses on unanticipated bad news.

1Deloitte 2013 Holiday Survey, http://deloitte.wsj.com/cio/files/2013/11/Holiday-infographic-2013-USE-THIS-ONE.pdf.

2Minsi Chung, “Amazon’s Toys Cheaper Than Wal-Mart Online,” Bloomberg.com, Nov. 18, 2013, http://www.bloomberg.com/news/2013-11-18/amazon-s-toys-cheaper-than-wal-mart-online.html, (accessed Nov. 20, 2013).

3Gillian Rich, “TJX EPS Continues Double-Digit Growth Streak,” Investor’s Business Daily, Nov. 19, 2013, http://news.investors.com/111913-679745-tjx-earnings-continue-double-digit-growth-streak.htm?ven=yahoocp&src=aurlled&ven=yahoo.