Stifel On Holiday Outlook For Softline Retailers: 'Not All Doom And Gloom'

• Stifel is predicting 2-3 percent softline retail sales growth this holiday season.
• Drivers include new fashion trends, declining electronics sales and an extra shopping day.
• The cost of free shipping will continue to weigh heavily on margins.

Holiday shopping season is almost here, and Stifel analyst Richard Jaffe believes that things might not be as bad this year for softline retailers as many fear. Jaffe believes this holiday season will be modestly better than last year's, and several stocks are poised to benefit from the growth.

Outlook

According to Jaffe, Stifel is predicting 2-3 percent year-over-year sales growth in apparel this holiday season. Jaffe sees new fashion trends this holiday season spurring increased apparel sales, as well as a decline in electronics spending and an extra selling day this year.

Related Link: NRF Predicts 3.7% Increase In Holiday Sales This Year, Significantly Higher Than 10-Year Average

Free Shipping

One major burden that modern retailers are facing is the cost of free shipping. According to Jaffe, about 30 percent of all orders are returned, and free shipping compounds the problem. "Inbound Logistics estimated that on average reverse logistic costs for consumer goods are 8.1% of total sales and those costs have likely increased to 10% of total sales," Jaffe explained.

Unfortunately, these costs weigh on margins, and with the fierce holiday competition among retailers, many companies will have no choice but to match competitors' free shipping deals.

Top Picks

Jaffe believes softline retailers will be going head-to-head on a number of initiatives this holiday season, including prices, merchandise, store hours, omni-channel offerings and marketing. Stifel’s top stock picks include Buy-rated American Eagle Outfitters (NYSE: AEO), Express, Inc. (NYSE: EXPR), Gap Inc (NYSE: GPS), TJX Companies Inc (NYSE: TJX) and Nordstrom, Inc. (NYSE: JWN).

Disclosure: the author holds no position in the stocks mentioned.