Consumers Cautious on Holiday, Premium Brand Spending

As a preview to the 2014 holiday shopping season and the year ahead, Morgan Stanley brought together approximately 55 companies and 900 investors in New York on November 18-19 to discuss the outlook for the retail-focused consumer staples and consumer discretionary sectors. The firm's analysts highlighted themes likely to emerge at the annual Global Consumer Conference in the videos below.

Morgan Stanley Soft Lines and Department Store Retail Analyst Kimberly Greenberger projected lackluster retail sales growth for the 2014 holiday season, as consumer doubt about the strength of the economy restrains spending. She believed athletic footwear/apparel retailers and purveyors of gift items like handbags, jewelry and watches are best-positioned to win at the register. While the economy is in better shape than a year ago, Greenberger says consumers are spending more incremental income on dining out and consumer electronics, leaving less for retail purchases. The primary focus of retailers this holiday season will be driving store and website traffic, and harnessing technology to better manage inventory.

Morgan Stanley Beverages and Household Products Analyst Dara Mohsenian addressed the potential for a shift in the locus of consumer demand from emerging markets to a resurgent US He also examined how a decline in commodity costs could impact pricing power and promotional activity and discusses consumer preferences for healthier products and new product categories. In the near term, the strategic value of the leading brands in the sector should be enough to maintain current valuations. But to jumpstart revenue and grow earnings per share, he believed the largest beverage and household goods retailers need to put their balance sheets to better use by funding acquisitions and buying back shares.