The consumer stubbornly continues to spend. ShopperTrak reported that the big kick-off to the holiday shopping season was a huge success: "Black Friday Sales Total 10.3Billion, Up a Strong 8.3 Percent as Compared to 2006." You might be inclined to argue that this is not bullish, but it sure is not bearish, at least not in the short-term. Assuming the mmomentum holds up the rest of the weekend and the holidays, we have the makings of one of those moments when something goes right amidst everything that's going wrong. With financial markets that were bracing for the worst, I strongly suspect that we have finally received a catalyst for the strong bounce from oversold conditions that I last mentioned.
Now, I am careful to state that this news is at least not bearish in the short-term. If you are a firm believer that the consumer is going to get crushed by the $362 billion in sub-prime adjustable rate mortgage loans due to reset next year, then you will argue that consumers are being extremely irresponsible by going on one last spending spree before darkness. If you are a bull, you might argue that the robust spending is reflective of a healthy labor market that will continue to provide the consumer support well into the flurry of ARM resets. Take your pick. At this point, I am inclined to lean toward the bulls until they are proven guilty (like violations of the August and March lows in the S&P500).
The consumer is on my mind not because of Black Friday, but because of my own shopping trip to Best Buy on Saturday to replace a TV. My 5-year old 27" Panasonic "tube TV" has been acting up for the last 3 years. It goes on fussy streaks where the TV will shut off on its own. Often times, I can unplug the TV, let it "cool down", plug the power back in, and continue on. Since I do not watch much TV, this situation was actually tolerable. However, NOW, the darn thing persistently goes out and has gotten harder and harder to revive. I finally got frustrated enough to decide I need a new TV - besides I have to think about more than just my own needs these days (=smiles=). I typically cringe when I go out to buy new electronics because I get used to what I have and fear the unknown; that is, the new set of problems I will inherit with my new purchases. (Sure enough, it seems my new TV has problems talking to my VCR which I bought because my even older VCR has trouble talking to the now defunct TV...ugh!).
Anyway, Best Buy is pretty much the only place I shop for electronics these days outside the occassional purchase at one of the office supply retailers (Office Depot or Office Max). I headed straight for the section of flat screen TVs was amazed at the array of options. Again, I am pretty slow in upgrading my gadgets, so this dazzling section truly caught me off-guard. After surveying the price ranges for the various screen sizes, my eyes focused in on an unfamiliar brand: "Insignia." The 26" flat screen Insignia was priced much lower than competing name brands. I looked to see whether this was one of those cheapie South Korean things. Nope. It was made in China (no big surprise there), but it appeared to be a Best Buy brand. My curiosity took over. I found a customer service guy, and he explained the whole thing to me. Best Buy now carries self-branded electronics that they get direct from the manufacturers in China using the same parts everyone else uses. From what I could tell, the designs are also very basic, delivering just what you need the most. The 26" was all sold-out (a great deal if you can get it!), so I checked out the next size up. Turns out the 32" Best Buy brand is called "Dynex." At $449 it was roughly $150 cheaper than competing brands. The sales guy did not have to tell me twice. (It was also a good thing I got the bigger size because it fit the space of the former tub TV much better).
I did the math. My current experience tells me that these name brand electronics seem to be getting less and less reliable as cheap manufacturing (largely from China) combines with an increasing tolerance we seem to have for thinking of these electronics as disposable. Best Buy should be less prone to sell faulty goods because their own brand name is at stake, so Ifigured the Best Buy electronics must be no worse than the name brands. I used some of my $150 "savings" to purchase the $59 Best Buy 4-year protection plan for extra peace of mind. Those protection plans make so little sense for the individual consumer, but in this case, I was actually able to justify it. Add on the reward zone points and 6-months same as cash financing, and I left the store pretty happy...all things considered.
So, the morals of this story? The consumer ain't dead. Best Buy has probabaly landed on another great retailing strategy to further crush its already weak competition. And Best Buy's stock should continue to cling to its 2005 break-out from multi-year resistance into all-time high territory, and dare I say finally generate enough steam to break-out from the current 30-month trading channel?
Be careful out there!