Discretionary Spending's Stealthy Revival (& how to tap it)

With Black Friday and Cyber Monday results now in hand, we can start to make some definitive (i.e. investment worthy) conclusions about 2009's holiday shopping season... like who's likely to win, and who's likely to lose. More than that though, we can glean a few hints about the bigger direction the market is taking. Let's just say not everyone's tightening their belt as much as they'd like to believe. 

First things first though - let's look at the facts which will support our later conclusions. 
 

Numbers Don't Lie

Some of these stats you may be familiar with, and some you may not. Just to make sure we're all fully informed and on the same page though, let's run through all of them quickly.

Regarding retail sales over the post-Thanksgiving weekend...

• In-store shopping over the weekend (not just the Friday after Thanksgiving) saw 13% more foot traffic, about 8% fewer dollars spent per shopper, and a very modest 0.5% increase in total sales volume. 
• Black Friday's online sales were actually up quite nicely. Total revenue from online retailing was up 11% on Black Friday alone, as the average online order size increased by 35% compared to last year's average order. 
• Cyber Monday (the first Monday after Thanksgiving) pretty much matched Black Friday's online success with a 14% improvement over last year's sales. The average order size was up 38%. 

As for product-specific trends that started prior to November - but perhaps reversed during November - that's where things get interesting.

This was supposed to be a value-oriented shopping season... one that would pit retailers against one another in a fight to offer the best bargains on the most useful and functional merchandise that would still make for a decent gift. In other words, the prevailing mentality was expected to be "a 60 inch plasma TV screens are nice, but little Johnny needs a new pair of jeans for school instead."

While the value orientation is palpable, consumers are splurging a little more than they may want to acknowledge. 

• Sales of technology items like TVs, cameras, and video games were roughly 6% stronger than last year on Black Friday. [The justification was that this year's so-called 'doorbuster' deals were better than last year's, and too good to pass up. The reality is, the pricing scheme this year wasn't all that different than last year's - the marketing just did a great job at conveying the idea of bargains.] 
• While the recession had been pretty rough on the category, jewelry sales may have just turned the corner. On Black Friday, the average order size for online jewelry retailers increased by 25% over last year's average order. The total jewelry revenue figures (online or in-store) are not yet available, but considering Blue Nile (NILE) - through bluenile.com - just saw its best Black Friday and best Cyber Monday ever, it's hard to say consumers are thinking ultra conservatively. [The online jeweler caters offers discounted, high-end jewelry (yes you read that right). The company has seen a marked increase in sales of items priced greater than $20,000.] 
• Though still struggling, it's worth noting that Zales (ZLC) and Tiffany & Co, (TIF) both beat earnings estimates last quarter. 

Unity Marketing, a consumer research firm, monitors and indexes spending habits of a cross section of American consumers. According to its latest update of the Luxury Consumption Index, luxury spending increased 29% between Q2 and Q3. Bear in mind it was the top tier earners that drove the bulk of the jump, but their willingness to spend still bodes well for higher-end and luxury retailers this shopping season.... and perhaps beyond.

Bottom line? There are two kinds of holiday consumers emerging this year - the ones that are indeed spending wisely, and the ones that are starting to spend generously again after taking last year off. Though the latter group is the minority, they're still creating a major investment opportunity. 
 

Tapping the Trends

In short, discretionary consumption is a little stronger than most anyone believes. Technology and jewelry are particularly attractive products right now... two areas that were avoided as unjustifiable guilty pleasures for the better part of a year. As the economy and the market continue to improve, however, the guilt fades away and the dollars start to flow. That's beneficial to luxury, technology, and 'toy' makers.

Simultaneously, there's still that lingering mentality that bargains are worth seeking - if you're going to buy it, at least find it at the best price. That's beneficial for web-based retailers that can offer prices lower than stores can, since there's little overhead in running an internet-based store. 

While these themes have emerged as a result of the media's hunt for clues surrounding Christmas sales, the underpinnings are longer-term. That's a point we make specifically to explain the following ideas aren't mere short-term trades designed to be dumped when the shopping mood stalls early next year; the holiday sales data is simply a glimpse of the bigger trend. 

In any case, here are four stocks well-positioned to benefit from this new offshoot in consumerism.

• Amazon.com (AMZN) - Yes, it's a pretty predictable pick, but a pretty logical one too. Their prices are lower than their competitors', they offer plenty of technology and electronic gadgets, and they're not geography-dependent. Even without the emerging trends discussed above, however, Amazon's consistent growth makes a solid 'buy' case. 
• Claymore/Robb Report Global Luxury ETF (ROB) - Yes, it's a real ETF. In fact, it's one that can tap the higher-end luxury growth trend much better than Amazon or a high-end department store can. Within the fund you'll find holdings like Christian Dior, Coach, Ralph Lauren, Porsche, and Tiffany just to name a few. The upside to North American investors is that it gives you exposure to companies that wouldn't be available to you in any format. 
• Aeropostale (ARO) - Don't misunderstand - Aeropostale is hardly a luxury name, nor does its clothing command luxury prices. The retailer targets teens looking for a trendy label at a great price; we put it more in the 'guilty pleasure' category. Nevertheless, the company should do even better as discretionary spending improves, building on its surprisingly strong results in a challenging environment. Moreover, its website is well-geared to capture and convert casual online shoppers, which are growing in number. 
• Empresa Brasileira de Aeronautica S.A. (ERJ) - You've probably never heard of the company, but you probably have ridden in one of their small commuter jets. The aircraft manufacturer also makes private and corporate jets, which are starting to see an uptick in demand. The advantage here is that it's an idea very few other investors will find until it's a wildly obvious play. 

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