Last night roughly marked the start of the official Christmas sales campaign of online retailers via the annual phenomenon known as Click Frenzy. Hundreds of online retailers banded together for just 24 hours to offer consumers lucrative discounts in the fight for those hard earned dollars at the onset of Australia's busiest retail period.
A combination of stagnant inflation, record low interest rates and high consumer confidence means retailers expect a bumper Christmas sales season this year. However, with just over five weeks to go until 25 December, every retailer admits they'll need to pull out all the stops to come out winners this year.
In my mind, Harvey Norman Holdings Limited (ASX: HVN) and JB Hi Fi Limited (ASX: JBH) are best placed to capitalise on this year's silly season. Here is why.
The sweet spot
A falling oil price, low wage growth and food price deflation all means one thing – a lower cost of living for Australians.
When you overlay that with a surging Australian housing market, globally stimulative monetary policy and modest rates of unemployment, its little wonder why many Australians feel "richer" in the current economic climate.
Whilst the array of favourable economic statistics underlines the depth of Australia's "two-speed economy", for those lucky enough to be stably employed or to own a home, times are golden. This breeds spending.
The winning formula
With consumers feeling wealthier, companies which should benefit from increased discretionary spend include the likes of Premier Investments Limited (ASX: PMV) and Super Retail Group Ltd (ASX: SUL), which have both successfully carved out niches in the small-spend discretionary retail sector. At the other end of the scale, Harvey Norman and JB Hi Fi should benefit from increased big ticket spend given their competitive product mix.
On trend
Both Harvey Norman and JB Hi Fi stores are leveraged to a booming housing cycle, with the latter's recent acquisition of The Good Guys adding firepower to its expansion into the home and electrical market.
Admittedly, both Harvey Norman and JB Hi FI trade at rich multiples of 14.3x and 17.2x respectively. However, their recent full-year profit results demonstrate growing momentum with both companies reporting double-digit profit growth (30% for Harvey Norman, 11.5% for JB Hi Fi) and strong sales across all categories. I expect this trend to continue in light of the continued rise in house prices and growing consumer confidence.
Foolish takeaway
The tailwinds of a surging housing market and low cost of living means customers should have more disposable income to spend on discretionary household items.
Although companies like Woolworths SA owned David Jones and Myer Holdings Ltd (ASX: MYR) should also see an uptick in sales as a result, I believe Harvey Norman's and JB Hi Fi's product mix gives them most leverage to current trends.
Accordingly, I think Santa will be very kind this Christmas to both these companies.
