[Note: I'm writing this in the wee hours of Christmas Eve-eve. If it makes sense and seems credible then I whole-heartedly believe this and gladly take credit for the idea. If it sounds nutty then it's really, really late and I didn't know what I was writing.]
Have you noticed the odd paradox that appears to have sprung up around the holiday shopping season? Every year we go to the mall and can't find a parking space because it is crammed with shoppers. Every day from Thanksgiving to Christmas it becomes virtually impossible to elbow your way into the Wal-Mart to grab the last of the [Insert Name of Hot Christmas Toy Here].
Yet we turn on the evening news and we hear that the holiday outlook for retail sales looks less than promising.
What?
With the way the cash registers are ringing, an entire squadron of cherubim should be getting their wings. So where is the money going? I'll give you a two word hint: gift cards.
According to the Fort Worth Star Telegram:
Part of the problem may be the rising popularity of gift cards, which do not show up as sales on most retailers' ledgers until after the cards have been redeemed for merchandise. Gift card purchases are expected to top $17.2 billion this season, accounting for an estimated 8 percent of all holiday sales, according to the National Retail Federation trade group.
Okay, so here is where the conspiracy theory kicks in:
Your average stockholder who holds a retail stock (i.e., Wal-Mart, Target) believes that the holiday season will be the best earnings quarter of the year. Then she hears on the news that the retail sales for the season doesn't look promising. Naturally, she's disappointed.
While doing her end of year tax-planning she decides to dump her under-performing stocks in order to write-off the loss. She figures that she will have to hold onto her retail stocks until next Christmas before they begin to show an adequate return. She decides to just sell them and take the loss. Thousands of other retail stockholders follow this same reasoning which drives the price of the stock lower.
The executives of the retail companies cash in their fat Christmas bonus checks and buy up their own companies stock at the new low price. January rolls around and consumers cash in the gift cards they received for Christmas. First quarter sales sky-rocket, retail stock prices increase. Executives pat themselves on the back for thinking of such a brilliant strategy.
Far fetched? Perhaps. But the geniuses at Wal-Mart found a way to get rich by putting a "redneck mall" in every hick town in America. If they can figure out how to do that then I imagine they can do just about anything.
Update: Mike Pechar from the Interested Participant has some more info for the conspiracy: they lose their value over time!
1
You're not off your rocker. However, the flaw in your theory is the notion that individual stockholders have enough selling power to move the stock lower. Plus, I think most individual investors are the buy-and-hold type. Real evidence can prove me wrong on both counts.
You should submit this post to the Carnival of the Capitalist I'm hosting next week.
posted on 12.24.2003 2:56 AM2
JP
I looked at just few charts today (including Wal-Mart)and I'm not sure the historical stock prices prove your theory. I do agree though that there is something about gift cards we are not seeing. If I could get my customers to pay me in advance for products do be delivered later, and at a price of my choosing, I would be happy. Wouldn't you?
3
You hit a nerve with this one Joe.
I think it relates back to what the retailers are "expecting" their sales to be. What are those expectations based on? Greed? Consider how much more affluent we are vs. 50 years ago. How many people "expect" to take a two week vacation to exotic places nowadays?... and 50 years ago?
It would be interesting to see a comparison of % of income spent on Christmas gifts for the average family 50 years ago vs. that today... the answer might shed some light on how unrealistic our "expectations" really are.
posted on 12.24.2003 12:27 PM4
I think there is more to the gift card thing this. Not only do gift cards not show up in earnings until they are redeemed, but very often, they are never redeemed and the retailer has liabilities that will never be called in. It's referred to as "breakage." See the following article for this and other ways companies can make money that is not really theirs:
http://www.fool.com/news/commentary/2003/commentary031217bm.htm
5
I have a hard time with most conspiracy theories, but I do agree with the observation that the "sky is falling" remarks by the media concerning the holiday economy don't match what I see at the mall parking lots.
posted on 12.24.2003 1:48 PM6
To Mr. Carter, and everyone else reading this:
I hope that you and yours had a great day, and are having a great holiday season.
Merry Christmas!
And God Bless!!
posted on 12.26.2003 3:07 AM7
Most states have laws which require unredeemed amounts on gift certificates or cards to be escheated back to the state as unclaimed property--so it is our esteemed governments who really benefit. Further, most states do allow a nominal monthly fee after the account has been open for a period for long-term administrative upkeep.
posted on 01.05.2004 9:28 PM