10-15 Associates

The Changing Face of the Consumer – December 2015 Monthly Market Commentary

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By Deborah DeMatteo
Managing Director & Chief Investment Officer

November is a month of giving thanks with friends and family. For retailers, it is the start of the long awaited holiday shopping season as they hope to end the year in the black. The traditional Black Friday shopping frenzy has been changing a little at a time over the last decade. With the reality of the internet becoming a greater force each year, retailers have pushed harder each season to garner the early spending, allowing shopping to intrude on our Thanksgiving meal. This month we will explore the impact of the changing face of Black Friday, as well as similar traditions in other parts of the world. Also a new tradition known as Giving Tuesday, took on a new meaning this November. And as usual, we will look at the current string of economic data in this last month before we expect the first Fed rate hike.

In the midst of this year’s Black Friday Sale, consumers eagerly awaited the price slashing that is common during November’s season of deals. But this year’s sale seemed a little different than previous years. People did their waiting from behind computer screens, as opposed to a tent outside of their local Best Buy. More people than ever decided to shop from an iPad and iPhone with friends and family in the room rather than frantic strangers.

The ability to shop from home on a computer or from a handheld device has caused a significant shift in the sales numbers we saw this year on Black Friday. To start with some general statistics, spending in physical stores fell nearly 10 percent from 2014 on both Thanksgiving and Black Friday. In contrast, online sales surged by double digits this year for the two days combined. These figures led to the first year in history that online sales eclipsed that of brick and mortar sales. “It’s a total shift that’s happening,” says Krish Manitripragada, Senior Vice President of Information and Analytics Solutions at First Data. “People can pretty much get the same deals and breadth of coverage online they would have otherwise only gotten in stores a few years ago.”

And we saw another first this Thanksgiving shopping season, as mobile trumped desktop shopping. Mobile accounted for 37 percent of o nline re ve nu e – 22 pe rce nt smartphones, and 15 percent tablets, which drove a record-breaking $639 million in sales. The explosive growth of mobile shopping has exceeded even the most optimistic estimates. In 2010, only 5.6 percent of all online traffic and 3.2 percent of sales on Black Friday came from mobile devices. The hordes of shoppers rushing into brick-andmortar stores on Black Friday may finally be at its death throes thanks to smartphones and tablets.

Earlier this month, China took part in their answer to our Cyber Monday with Singles’ Day; celebrated on 11/11 for its association with the number 1. What was once an anti-Valentine’s Day holiday has been transformed by Alibaba into the world’s largest online shopping day. The sales on Single’s Day this year were nothing short of staggering. Alibaba alone logged a record of $14.3 billion in sales, an increase of over 55 percent from last year. Although this boost in retail sales cannot mask the difficulties facing the Chinese manufacturing industry, Alibaba CEO, Jack Ma is confident, “China’s economy will be strong for the next 15 years.”

This November, one of America’s wealthiest men brought new meaning to Giving Tuesday. Mark Zuckerberg of Facebook simultaneously announced the birth of his daughter Max with wife Priscilla Chan and his magnanimous decision to donate 99 percent of his Facebook stock, a gift currently worth $45 billion. Mr. Zuckerberg will control the voting and disposition of any shares donated to the charity, as noted in an SEC filing. This may seem, at the surface, as a very generous donation, but if you delve a little deeper you will see that Mr. Zuckerberg stands to benefit greatly from his donation. The Facebook CEO will be donating shares of his stock, which is an excellent tax strategy. With donating stock, unlike cash, the donor gets a charitable contribution deduction based on the fair market value of the shares. This allows the donor to bypass the tax on the appreciation of the stock. When Facebook went public in May of 2012, it was initially priced at $38, and is currently trading over $100 per share. The ultra-wealthy, including Bill Gates and Warren Buffet have formed an elite group that has made a pledge to give away a majority of their wealth. We can now add Mark Zuckerberg to this club. Although these donations are mutually beneficial, we can hope they are done mainly with society’s benefit in mind and not solely as a tax strategy.

As for the economy, the data remains mixed. The disappointing news came from the November PMI, or Purchasing Managers Index, which registered the lowest number that we have seen this year. It was significant because it dipped below 50 coming in at 48.6. Any reading under 50 represents a contraction in the economy. This is the first time since November 2012 that we have had a reading below 50. The PMI is based on five major indicators: new orders, inventory levels, production, deliveries, and the employment environment. Ten out of the eighteen manufacturing industries reported contraction in November, with lower new orders, production, and raw materials inventories accounting for the overall softness in November. The only bright spot was employment, which was also reflected in the November jobs report and showed the economy had added 211,000 jobs during the month. This puts the ball into the Federal Reserve’s court without completely clearing a path for raising rates. The market is now expecting Fed Chair Janet Yellen, to finally make the first move later this month. This will continue the handwringing right through the end of the year.

As the final weeks of the year come to a close, take time to reflect and enjoy family friends and loved ones. From all of us at 10-15 Associates we wish you and your family the very best Holiday Season and a Happy and Healthy New Year!

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