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Mall stocks rally on holiday sales optimism, ahead of 'dreaded December lull'

  • Shares of Macy's, Dillard's, Nordstrom, Kohl's, Sears and J.C. Penney were all higher Wednesday.
  • The National Retail Federation issued a rosy report Tuesday afternoon, saying department stores were still a top shopping destination over Thanksgiving weekend.
A shopper carries a Macy's shopping bag
Getty Images
A shopper carries a Macy's shopping bag

Call it the holiday comeback.

Retail stocks, and mainly those of department store operators, were climbing at a rapid clip Wednesday morning, on the heels of upbeat reports regarding a strong start to the holiday season.

Among them, preliminary results from the National Retail Federation indicated more people shopped both at stores and online over Thanksgiving weekend.

Macy's shares were up about 9 percent, Dillard's stock was climbing nearly 10 percent, Nordstrom's stock spiked more than 7 percent and Kohl's shares were up 5 percent.

Sears Holdings, which is set to report fiscal third-quarter earnings before the bell Thursday, also watched its stock climb over 7 percent, while J.C. Penney shares were up about 3 percent Wednesday afternoon.

Other names including Target, Under Armour, T.J. Maxx and Gap also joined the rally. The S&P 500 Retail ETF (XRT) was up 2.8 percent by midafternoon. The ETF is now up slightly in 2017.

"In general, department stores had a decent Black Friday weekend," Customer Growth Partners President Craig Johnson told CNBC.

NRF's survey of roughly 3,200 Americans found that 43 percent of shoppers opted to head to department stores over Thanksgiving weekend, with the average shopper spending $335.47 from Thursday through Monday.

Internet behemoth Amazon announced it rung up more sales on Cyber Monday than any shopping day in the company's history. Some analysts are expecting Amazon to steal up to 50 percent of digital sales this holiday season, but that news doesn't appear to be setting traditional retailers back, at least for now.

Amazon shares were falling nearly 3 percent by Wednesday afternoon.

Amazon's news also came against a backdrop of record sales on Cyber Monday. Adobe Insights, which measures 80 percent of all online transactions from 100 major U.S. retailers, said digital transactions reached $6.59 billion, a 16.8 percent increase from last year.

"I think the market is excited about the strong results from Cyber Monday and the more upbeat forecasts around holiday spending," GlobalData Retail managing director Neil Saunders told CNBC.

"There is no doubt that these things will boost department store sales, but I am less convinced that they will save the sector," Saunders added.

One factor will be how well sales go for the rest of the holiday season. "The question is how much simply represented demand pull-forward from December, leading to the dreaded December lull," Johnson said.

It's true, retailers tend to reach peak sales and traffic in stores around the end of November, then hit a slow period up until the week before Christmas, when last-minute shoppers dash to finish their gifting.

The obstacle then becomes how to lure customers to stores, when discounts aren't as deep as they are leading up to Cyber Monday. The issue is being exacerbated further as more shoppers turn to their smartphones to shop online, where profit margins are thinner and returns become a logistics burden.

Retailers can avoid a "lull" by bringing in exclusive products that shoppers can't find anywhere else, Johnson said. Another option would be to leverage management software that targets customers who haven't been around in awhile.

"Don't just drop your prices 50 percent to Black Friday levels," he advised.