The Hidden Ingredient in Retail

 | Dec 10, 2013 | 7:39 AM EST
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Sometimes you have to work on a thesis that says maybe things aren't as bad as they seem, or else stocks wouldn't be where they are right now.

That's the thesis I am working on with retail, and I got a huge boost for my thesis last night when I interviewed Manny Chirico from PVH (PVH) and Ed Heffernan from Alliance Data Systems (ADS).

PVH is the biggest supplier for both shirts and ties to most department stores in the country, as well as the company behind the names Calvin Klein and Tommy Hilfiger. The Calvin Klein jeans business, which came with PVH's purchase of Warnaco earlier this year, has been very problematic. However, away from that, brand business has been much stronger at retail for PVH than the media has made the holiday out to be. And while Manny agrees that the atmosphere has been promotional, he does say business was getting stronger, not weaker, in the holidays -- but that, because of the shortened season, there just might not be enough time for it to be a blow-out.

Alliance Data, which runs the affinity programs for all of the major retailers and has a database that covers 250 million customers, is quite simply saying that it has been a terrific holiday. This company handles the multi-channel marketing -- or omni-channel, or whatever you want to call it -- for many retailers. It is seeing incredible ordering online -- numbers that are much, much stronger than anyone thinks. That's where the hidden dollars are going, and Heffernan says that when the holiday is over it would not surprise him to see that sales are up mid-to-even-high single digits.

I think that's a huge piece of information that explains much of what negative-leaning people are missing. Heffernan says that the media are still using the same way of assessing a holiday season as they did five years ago, even as everything has changed about where spending is coming from. The real spend, he says, is truly indicative of an economy doing much better than people realize.

And that's why the stock market keeps doing better than what people expect. It makes sense when you consider the missing ingredient, but only if you know that it's occurring.

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