Yum! Brands Inc. (NYSE:YUM) expects another year of double-digit profit growth.

For nearly everyone else, 2009 won’t be just “another year.” Nearly every economist expects the first half of the New Year to bring more of the same, a deepening global financial crisis that’ll throw an even bigger, wetter blanket on economic growth than it did this year.

Indeed, even more than in 2008, next year will be a real-life case study of the survival of the fittest. And Yum’s certainly fit for the fight.

“Our industry is better-positioned in times like this,” Yum Chief Executive Officer David C. Novak told The Wall Street Journal. “We’re better-positioned than most other categories and industries.”

Already, we’re seeing companies slash work forces, trim (or abolish) dividends, and lock the safe that stores their spending money, sell off holdings or even shut down completely.

Yum’s not immune from the downturn. It, too, is cutting $60 million in operating costs from its U.S. business. It’s also putting a hold on buying back shares next year to preserve cash.

But unlike most, Yum hasn’t red-lighted its 2009 expansion plans – it’s still planning to build as many as 1,400 restaurants in international markets. About 500 of those new stores will be in China. That’s part of the reason the overall company is projecting at least 10% profit growth in 2009.

More broadly, Yum is expanding in the world’s fastest-growing economies and is making its menu part and parcel of every foreign country in which it operates. Two factors have imbued the company with a corporate killer instinct that’s enabling it to survive and thrive in the face of the current harsh economic environment: The innate strength of its own brands and a proven ability to adapt to any market it decides to pursue.

For marketing muscle, the Louisville, Ky.-based Yum has an army of brands – Pizza Hut, Kentucky Fried Chicken, Long John Silvers and A&W – plus its own line of Yum Restaurants that it operates outside the United States.

And its overseas franchises – especially Pizza Hut and KFC – are especially adept at making themselves the people’s favorite local flavor, instead of just their favorite American flavor.

Here’s a look at some of the items on Pizza Hut’s China menu: tuna fish pizza, roasted squid, zesty shrimp soup, a variety of rice-and-meat dishes (kimchi pork, curry beef and Hungarian beef rice), green tea, and chocolate mousse cake.

The bottom line: Yum’s stronghold and growth potential in China is shaping up as one of the most promising investment stories of 2009.

China Stronghold

As far as Yum Chief Financial Officer Richard T. Curucci is concerned, the company’s target for 10% profit growth should be easy to hit.

“We can get these numbers without heroic sales performance” at existing restaurants in China, Carucci said on a Webcast from the company’s analyst meeting, Reuters reported.

While Carucci says that Yum is “still not sure how China’s going to respond to a slowing economy,” he is certain of the company’s master plan which makes the Red Dragon the centerpiece of its growth strategy.

As of now, the United States accounts for 41% of Yum’s operating profits. China accounts for 28% and the rest of the company’s operations around the world account for the remaining 31%.

By 2013, China will account for 40% of Yum’s operating profit, while the United States and the rest of the world will each account for a 30% share, according to company projections.

As this plays out, Yum should outdistance some of its rivals, especially McDonald’s Corp. (MCD). That’s because Yum has done a better job penetrating the China market.

From 2002 to 2007, Yum opened 1,678 new stores in China, for a total of 2,558. In that same span, McDonald’s added 330 stores, giving the Golden Arches’ owner a total of 876 stores in China.

Yum has even stolen McDonald’s thunder in the mascot department. Its KFC mascot, a chicken character (naturally) named “Chicky,” roams stores and interacts with children. And the company’s Chicky program includes in-store birthday parties, kids’ fun camp and school tours of its stores. No wonder that Novak, the Yum CEO, boasted to Business Week two years ago that Chicky had already become “the Ronald McDonald of China.”

“We’re on the ground floor of a booming market, just like when Colonel Sanders started KFC and Ray Kroc started McDonald’s,” Novak told Business Week, noting that he one day wants to have as many restaurants in China as he does here in the United States.

Stateside Strategy

Novak said last week that the United States market was the lone problem the company has had in 2008.

Not only does Yum face a wider number and variety of competitors, but also fighting the headwinds of recession.

In addition to cutting $60 million from operational costs and suspending the company’s share buyback, Yum will offset the planned opening of 200 new U.S. restaurants by closing about the same number.

Other strategies will appear on the menu.

At Pizza Hut, the company is adding lasagna to its new Tuscani pasta line.

At KFC, it’s rolling out a grilled chicken option, a menu item Novak called a “transformational product” at an investor conference last week, The Associated Press reported.

The chicken chain will also create and promote a value menu, featuring items costing from $0.99 to $1.99.

Source: Hot Stocks: Fast Food Restaurateur Yum! Brands Making China its Main Course

During the Great Depression, financially devastated Americans sold turnips along side the road to make ends meet. Today, they merely boot up their computer and sell their junk online.

For proof, I called up an acquaintance that makes her living buying and selling on eBay (NASDAQ:EBAY). She answered the phone sounding like she had just spent the last 48 hours on a runaway treadmill. She was tired and grumpy.

“So how did Cyber Monday treat you,” I asked.

“It was insane. I have more orders than I can handle,” I think she replied. In her tired and mumbling tone, it was hard to know exactly what she said.

I do know she cursed and hung up on me when I told her to hang on to her hat with Green Monday and its huge shopping volumes on the way. Experts are predicting it will be the biggest online retailing day of the year.

Mr. And Mrs. Clause go online

While my auction-dealing friend was overworked and tired, I am sure she is glad for the surge in eBay spending. In all, online retail spending was up by 15% or so on Cyber Monday, the closely monitored first day back to work after the Thanksgiving holiday.

While online retailers like Amazon (NASDAQ:AMZN), Gap (NYSE:GPS) and Best Buy (NYSE:BBY) raked in their share of the $846 million spent last Monday, the Web’s largest auction site saw its selling activity soar. EBay reported a 50% year-over-year increase, thanks to its fixed-price sales surging by over 125% from last year.

When the nation’s economy locks its brakes, one of the first places discount shoppers and money-hungry sellers head is eBay. The site’s foundation is built on allowing individual sellers to unload their unwanted “junk” for cash.

As tens of thousands of Americans hit the unemployment line, they are turning to eBay for a shot at some quick and easy cash. Financially desperate sellers will unload just about anything they can live without in order to pay their winter heating bills, mortgages, and, of course, their burgeoning Christmas debt.

Some more discount buying

Wall Street has hammered eBay’s valuation over the past twelve months. A year ago, shares were trading for nearly $35. Today, the few folks savvy enough to buy are getting their shares for just $13.

Unlike so many other companies trading on the major exchanges, eBay does not have any desperate liquidity issues. It does not have to beg to creditors to extend debt maturities. It will not be diluting shares with a last-ditch attempt to increase capitalization. And most importantly, it is in a position to increase its market depth through strategic acquisitions and in-house development.

I know a lot of folks do not like the company’s management. eBay’s CEO, John Donahoe, has made some controversial decisions and certainly plenty of mistakes, but a company with a significant cash cushion and a near-total lack of debt cannot be overlooked by value-minded investors.

This is one of those plays where you have to put emotions aside and look at the reality of the economic situation and the numbers the company is producing. If a bank or manufacturer could post a balance sheet like eBay’s, investors would be drooling to get in on the action.

The worst is behind eBay and its future looks bright. Take a look at the stock and see if it fits your portfolio. I am positive you will like what you see.

Source: eBay (NASDAQ:EBAY) takes advantage of online spending

This from Investor’s Daily Edge:

Consumers drive the American economy. Give them confidence in their jobs and they work hard, create value, make money and exchange it gladly.

Take away their jobs, and it all stops.  The flow even stops when people who still have jobs become worried by the trouble they see around them. And that is exactly what is happening today.

This week, the Institute for Supply Management released numbers that should frighten consumers and freeze the economy even more. The ISM’s monthly index of manufacturing activity fell to 36.2 for November. Any reading below 50 means the economy is shriveling, and these numbers are extreme. It gets worse. The new orders index fell to the lowest level in 28 years.

And jobs… The ISM employment index fell to 34.2. It has fallen four months in a row, without a sign of improvement anywhere in sight.

Meanwhile, financial pundits and columnists who should know that two-thirds of the U.S. economy is rooted in consumer spending applaud every layoff and plot for more… they think this creates shareholder value.

Worse, they invent plans to save the world by inflicting more pain and job loss.

I’m not sure where they think consumer dollars come from, but it’s a crazy idea to kill the golden geese if you expect them to spend their nest eggs. And they promote this nutty notion by repeating crazy or outright false facts…

For instance, they think they could save Detroit if it weren’t for those $70 an hour autoworkers.

Aww, gee… The problem with their plan is that union autoworkers don’t make $70 an hour. Not even close. Do you want to know the real numbers?

In 2007, the United Auto Workers union renegotiated the base union wage to $14 an hour for new “second tier” hires. That was a full 50% cut from what pre-2007 (first tier) workers got.

This is old, old news—the pundits with the plans should know this. I’m not sure whether they missed the news or they just prefer to overlook it because it doesn’t fit their philosophy that labor is always the problem.  In the military, spreading stuff like this is called disinformation. In politics, it’s called propaganda. Out here where I live, it’s called stubborn.

But you still think that $70 an hour number must have some truth if everybody is spouting it? Well, it must be those fabulous benefits, then, huh? Sure… but if you think a blue-collar $28 an hour bolt tightener is really making $70 an hour, let me show you how to prove a $7 an hour burger flipper really makes $18.

You start with your actual base pay of $7.25 an hour at Hamburger McHeaven. Then you add the national average for benefit expenses such as health insurance, retirement and vacations. That would be 29% of his base pay (U.S. Department of Labor, Small Business Administration data). Now you’re up to $9.35 an hour in wage costs (not all pay!).

We still have a long way to go… but we can use the “evil autoworker” ploy—we’ll include the pensions for four ancestors in the burger flipper’s salary.

That’s how you get a $70 an hour autoworker. You take his salary, plus his benefits like Social Security, FICA, workers comp, and health. And then you add full benefits and pension costs for four retired workers to the total.

That’s the germ of the “truth” in the $70 number, even though UAW workers don’t personally make anything close to that figure.

True, pensions are a big overhead. In 1962, GM (NYSE:GM) employed 460,000 American workers, and provided retirement benefits to about 40,000 former employees. But by 2005, GM had about 140,000 employees and 450,000 retirees.  Their past success and size led to this upside-down mess.

But the current worker’s pay? Truth: the actual average for manufacturing workers in Big Three auto plants is $67,480 a year. Turnover is very low. Half of these workers are over 45 and have been on the job more than 20 years. So they’re up to $32.44 an hour, just a 16% raise from what a new worker hired in 2006 would get. (Source: Center for Automotive Research data, 2008.)

And what does a retiree get? The average is $31,000.

These numbers, by the way, include both skilled and production workers… the designers, engineers, programmers and mechanics as well as the bolt-tighteners.

Detroit and other auto towns may lose hundreds to thousands of jobs. We may not be able to avoid it. But don’t imagine for a minute it’s good.

Fire ‘em, furlough them, poison them or ship them to the moon and you are still not going to save $145,000 every time you get rid of a GM, Ford (NYSE:F) or Chrysler worker.

But you will lose a consumer, who might lose a house, who will pay less in taxes at state, local and federal levels.  You will gain a family that doesn’t buy a new car, take a Disney vacation or eat steak and go out to Red Lobster once in a while. Why the media propose that creating massive sudden unemployment is going to fix Detroit’s mess—or ours—is a mystery to me.  Maybe they don’t like blue-collar workers who make more than they do.

That’s just the obvious example of the day. Ditto the same in a dozen other industries and states.

Job losses eventually harm us all indirectly. Maybe even your own city’s budget—even if you live in Maine or California instead of Detroit. The New York Times reports that in October alone, 20,000 employees of auto dealerships lost their jobs nationwide. The auto dealers association estimates that new-car dealers produce a $54 billion annual payroll for 1.1 million workers. These dealers bring in nearly 20% of the retail sales and sales taxes in small and large communities alike, according to the Times.

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And there’s something else you should know about those autoworkers if you think the middle class matters. They’re college grads, too

That’s right, as of 2007, over 74,000 of the Big Three’s 129,000 manufacturing workers in Michigan had college degrees. The ratio is continually rising. Unskilled positions are becoming very hard to find in the industry.

Even among skilled workers with no college degrees, attaining their skilled job status required 8,000 hours of on the job training, plus 700-800 hours of classroom time. If you were applying for a US government job, that would constitute the “equivalent” of a bachelor’s degree at the very least.

“They” are us. Different part of the country, different industry, different work, but real, true middle class people. That was Henry Ford’s plan. And Henry Ford was a heck of a capitalist.

Ford paid his autoworkers $5 a day back when a machinist’s pay was 22 cents an hour and less skilled workers made 15 cents to 20 cents an hour. Ford wanted his workers to reach middle class and buy cars.

We’ve lost his vision. He understood that good jobs led to widespread prosperity. Trying to hire U.S. workers at mythical pay scales of Third-World countries that sell third-rate cars within their own borders, or even their Japanese counterparts over here is not the solution.

In fact, non-union autoworkers at the foreign carmakers in the U.S. now make just about the same as the Big Three’s union workers.

Of course they do. Supply and demand, baby. If they didn’t, every Toyota (NYSE:TM) plant in the country would vote to go union tomorrow. Why don’t the media know this? Are they eating the magical mushrooms?

But the disinformation campaign rages, and you should ignore it. These people got their theories from books, and think they are better than average working people, because as long as the AC is working they don’t sweat while sitting at those desks.

It’s simple. The economy will not turn around while unemployment is rising. We may have to lose jobs, but it’s like losing a leg to prevent the spread of gangrene. It’s a deterrent; it’s not a blessing.

So, let’s not be so quick to applaud every time we read about layoffs.

And let’s not be too high-minded about preferring desk-bound white-collar jobs to production-line jobs. Only some of those white-collar jobs are truly skilled, and most are learned on the job just like in factories—except the training period is shorter in the white-collar world.

These days, companies hire college grads to be customer service order takers, salesmen and marketing assistants—none of which truly requires 16 years of education. College grads are a dime a dozen. The average machinist is far more explicitly job-skilled and has much greater direct job training than the average new bank teller or loan officer.

And just look where all those loan officers got us, anyway.

We may not bring back the housing bubble that sent the economy into overdrive, and we don’t want to. But we do need to put most of the people who lose jobs in this recession back to work as quickly as possible. Only then can we get the momentum to create real, new jobs once spending unlocks again.

My only hope is that if state or federal governments do create jobs with infrastructure spending to get things going the money will be tightly managed. I’d suggest two criteria:

• Funding only projects that are “shovel-ready,” not in planning.
• Earmarking for projects that serve security needs, high-density areas, major shipping routes or critically worn infrastructure such as old water and sewer systems.  We don’t need more outer-outer beltways, airport parking lots, stadiums, or highways through nowhere.

And by the way, give those autoworkers some credit for a lot of good things the rest of us enjoy. If you are going to screw them, at least snap off a respectful salute first.

Because you owe a lot of benefits to organized labor–paid vacations, 40-hour standard weeks… and your health insurance. Almost nobody had it till unions fought for employee health insurance when President Harry Truman’s plan for national healthcare failed in the 1940s.

Source: A Consumer Economy Can’t Run Without Consumer Income

This from Today’s Financial News:

The U.S. dollar dropped against the euro as the Commerce Department reduced Q3 GDP growth to -0.5% and the Fed announced that it was getting ready to throw another $800 billion into the fiery furnace of this fine financial mess.

Why did the greenback drop? I think it is more of a reflexive move. Investors still think in bi-polar terms: If things look bad for the States, the grass must be greener in Europe.

Of course, it isn’t. It never was.

If anything, Europe is worse off than the United States. The EU economy has turned recessive a full quarter before the U.S. economy. While GM and Ford are still talking about idling facilities, German automotive workers are already scheduled for four-week Christmas vacations. Not because the European system of managed idleness wants to provide time for introspection… but because people aren’t ordering cars!

But production lines creaking to a festive halt means plummeting demand for resources. Oil, natural gas, steel, iron — all have erased years’ worth of price increases.

So have nickel, cobalt, copper… inventories are overflowing and not even China’s much-touted trillion-dollar “stimulus” will bring prices back up.

Only goldbugs are still bidding up bullion.

Now, 60% of actual gold demand comes from jewelry sales. Where exactly people will be splurging on bling this year and in 2009 is anyone’s guess: The Chinese and Indian middle class is seeing their export base eroding due to parsimonious Americans and cash-strapped Europeans. Rajiv, alias “Bob”, has stopped calling Joe Sixpack to save him money on his mortgage. And shiploads full of Chinese-made toys are stuck in Chinese ports because letters of credit aren’t clearing.

To make things worse, portfolio valuations in Beijing and Bombay are down by over 60% for the year… and the cure-all of “domestic demand” really leaves a lot to be desired when you figure that a middle class discretionary spending budget in China and India is less than $2000. In a good year.

That leaves the vital need of Dubai and Abu Dhabi to equip every one-bedroom efficiency with solid gold bidets. But even the golden pleasure domes decreed by sheiks and emirs need cash to operate… and at $50-and-below oil, the oil princes are already short twenty bucks a barrel on their “conservative” budgets for 2009.

They may have to switch to sterling silver sinks soon…

The crux of this crisis is that in the medium term, there is no ying to our yang.

And unless the American consumer throws caution to the wind and converts his saved energy expenses into consumer goods in the next four weeks and beyond, we may see a return to the economic world most financial newsletter writers seem stuck in for the past thirty years.

The world of 1979.

Only that there’s no Reagan in sight…

The world’s future prosperity now relies on you to buy pre-lit artificial Christmas trees, the latest iPod, a Honey Baked Ham, and a Mini Cooper for little Zachry or Brittny.

Just as it always has.

Source: The bi-polar dollar delusion… why the world depends on you

This from Money Morning:

Although still seen as the world’s economic superpower, the United States has found itself with a myriad of problems: Skyrocketing federal debt, growing annual budget deficits, an almost nonexistent personal savings rate, and the dubious honor of being the country with the largest current account deficit, of which trade makes up the largest part.

A trade deficit occurs when you are importing more than you are exporting — in other words, you are consuming more than you are producing. So the next time you are at Wal–Mart (NYSE:WMT) or Target (NYSE:TGT), take a look around. Just about everything you can purchase there comes from another country.

Economists are generally split over what the economic impact of a trade deficit is on a country. Those who defend running a trade deficit argue that when the United States sends money to another country for its goods or services, that country will take that money and invest it back into the United States, in one way or another. In economist Milton Friedman’s opinion, having a large trade deficit meant that your country’s currency is desirable. He believed that a trade deficit simply meant that consumers had an opportunity to purchase and enjoy more goods at lower prices; on the flip side, a trade surplus implied that a country was exporting goods its own citizens did not get to consume or enjoy, while paying high prices for the goods they actually received.

However, as those on the other side of the argument point out, countries with large and long-term trade imbalances also maintain a low national savings rate. Conversely, those countries with trade surpluses (such as Germany, Canada, and Japan) have a high national savings rate. Those arguing against trade deficits believe that gross domestic product (GDP) and employment will be pulled down by a large trade deficit over the long run. As goods flow into the United States from other countries, the country is losing opportunities to produce these goods domestically, which subsequently has an adverse effect on U.S. jobs.

Somewhere in the middle of these two sides is the world’s richest man, Warren Buffett. Buffett believes that, on a whole, trade is a good thing for America, but that over the long term, running “large-and-persistent” trade imbalances will be problematic for the United States.

Buffett realizes the importance of having the average American understand big economic issues, like the trade deficit. As a result, he wrote an article in 2003 for Fortune magazine, called “Squanderville vs. Thriftville.” This parable of sorts was designed to simplify for the readers the problems inherent in trade imbalances.

“Economics tends to put people to sleep,” Buffett told us when we sat down with him in his office at Berkshire Hathaway Inc. (BRK.A, BRK.B), where he is CEO and largest shareholder. “And I thought by creating a couple islands with inhabitants of quite widely different activities that it might get across a point that otherwise they get lost on.”

In Buffett’s story, he outlined two side-by-side islands: Thriftville and Squanderville. On these islands, land is the capital asset, and these primitive people only need food and produce only food. At first, the citizens of both islands work eight hours a day and produce enough to sustain themselves. However, as time passes, the Thrifts realize that if they work harder and put in longer hours, they can produce a surplus of goods and then trade what they produce with the Squanders. The people of Squanderville like the idea of working less — and all the Thrifts want in exchange for these goods are “Squanderbonds,” which are denominated in “Squanderbucks.”

As time goes on, these Squanderbonds begin to pile up and it is clear that the Squanders will have to put in double time to eat and pay off their growing debt. “Meanwhile,” writes Buffett, “the citizens of Thriftville begin to get nervous.

Just how good, they ask, are the IOUs of a shiftless island? So the Thrifts change strategy: Though they continue to hold some bonds, they sell most of them to Squanderville residents for Squanderbucks and use the proceeds to buy Squanderville land. And eventually the Thrifts own all of Squanderville.”

“At that point, the Squanders are forced to deal with an ugly equation: They must now not only return to working eight hours a day in order to eat — they have nothing left to trade — but they must also work additional hours to service their debt and pay Thriftville rent on the land that they so imprudently sold. In effect, Squanderville has been colonized by purchase rather than conquest.”

In a nutshell: Buffett’s story illustrates that any short-term actions have long-term consequences that sometimes people don’t think about in the short run. This is true of the United States.

“Our country’s ‘net worth’,” Buffett writes in the introduction of his Fortune article, “is now being transferred abroad at an alarming rate. A perpetuation of this transfer will lead to major trouble.” And it may be more than just economic trouble. History shows that countries with similar trade and debt problems are fertile ground for political movements we’re not accustomed to in a democratic society.

In 2007, the total U.S. trade deficit was $738.6 billion, which was down 9% from 2006. Much of the decline could be attributed to a decline in the value of the U.S. dollar. The popular argument suggests that a lower dollar makes production of goods in the United States cheaper and therefore more attractive to buyers of U.S. goods overseas. Exports would go up. And in fact they are, each year.

Some would argue that the dollar is being kept weak to help close the trade gap.

“If I could finance all my own consumption today by handing out something called Warren Bucks or Warren IOUs and I had the power to determine the value of those IOUs over time, believe me, I would make sure that when I repaid them 10 or 20 years from now that they were worth less, per unit, than they are today. So any country that piles up external debt will have a great temptation to inflate over time, and that means that our currency, relative to other major currencies, is likely to depreciate over time.”

And this is just what the United States is doing. From November 2002 through August 2008, the dollar has fallen more than 50% against the euro. Some experts will argue that a weaker dollar benefits the United States — at least where the trade deficit is concerned.

What is not pointed out in this argument is that a falling dollar – paired with low domestic productivity – means that the country is consuming more than it produces. In that sense, since the dollar is losing purchasing power, Americans are paying more for these imports, and the rise in these import costs erases any sort of benefits the country would have seen because of a falling dollar. In other words, America is getting fewer goods for the same amount of money — but that isn’t slowing down the rate of American consumption.

“In the past six or eight years,” Buffett explains, “the United States has started consuming considerably more then it produces. It’s relied on the labor of others to provide things that are used every day. Because the country is so rich, this can continue for a long time, and on a large scale — but not forever.”

Buffett likens it to a credit card. “My credit’s pretty good at the moment,” he says, which usually draws snickers from the audience. “If I quit working and have no income coming in but keep spending, I can first sell off my assets and then, after that, I can start borrowing on my credit card. And if I’ve got a good reputation, I can do that for quite a while. But at some point, I max out. At that point, I have to start producing a whole lot more than I consume in order to clean up my debts.”

The trade deficit aside, Buffett doesn’t believe that the economic situation in the United States is as dire as many of the other experts with whom we’ve spoken have made it out to be. While he warns to not “bet against America,” because he believes that we have a healthy overall economy, what does keep the Oracle of Omaha up at night is the imbalance between imports and exports.

“The rest of the world is buying more and more of our goods all the time, but at an even greater rate, we’re buying more and more of theirs. More trade, overall, is good — as long as it’s true trade. If it’s ‘pseudo trade,’ where we’re buying but not selling, I do not think that’s good over time.”

This is why the U.S. trade deficit remains high. The United States is consuming more than it is producing. The country’s dependence on foreign oil, automotive parts, and cheap consumer products from China accounts for almost the entire deficit.

[Editor’s Note: The following essay was adapted from the book, “I.O.U.S.A.: One Nation. Under Stress. In Debt,”a companion offering to the critically acclaimed documentary “I.O.U.S.A.”]

Source: A Trip Down the Road to Squanderville

This from Smart Profits Report:

Stating that the retail sector has suffered a bombardment of bad news the last few months is like saying the Atlantic Ocean is wet.

My colleague Paul Moore wrote an excellent piece on Tuesday, detailing Circuit City’s (NYSE:CC) problems. Let me first say that I agree with Paul on Circuit City and that its woes are company-specific and a result of poor management, rather than a sector wide problem.

While we may not see bankruptcies springing up everywhere, expect this holiday season to be a bloodbath for retailers.

Let’s look at what this year’s crucial shopping season has in store – and of course, the best ways to profit…

A Shift In American Shopping Philosophy

“Shop ‘Till You Drop.”

No sooner have many Americans digested their Thanksgiving turkey and got over the tryptophan-induced grogginess and bloating than they rush out to the mall, with this rallying cry ringing in their ears.

The most important factor in trying to forecast retail sales is income. And because we’re not a nation of savers, if Americans are making money, they’re usually spending it soon afterwards.

The problem right now, though, is this: Because the country has endured a widespread slump, Americans are starting to change the way they think. They’re fearful about their incomes.

Average consumers have already cut back on their spending, and will likely tighten their wallets even more as we head deeper into this overarching bear market. And with good reason, too…

The Stats Paint An Ugly Picture

• On Wednesday, Fidelity Investments started the process of laying off 1,300 workers.
• Chicago Mayor Richard Daley said Wednesday that CEOs who do business in Chicago have warned him that mass layoffs are coming this month and in December – with more on the way next year.
• According to the Bureau of Labor Statistics, over 235,000 people lost their jobs in 2,269 mass layoff events, which are described as layoffs involving at least 50 people in a single action.  This was the highest total since 2001.
• Job losses on Wall Street alone are expected to total at least 45,000.

On top of that, initial jobless claims are at the highest level in eight years and we’ve got an unemployment rate of 6.5% – a figure not seen since 1994.

Those figures alone spell trouble for the retail sector, but when people suggest those numbers could climb into the double-digits, well… you can imagine the misery that would ensue.

Simply put, people are just plain scared. Retail is enduring a double-whammy. On one hand, it’s suffering because people are already getting laid off and don’t have the income to buy flat-screen TV and iPods. And following swiftly behind it is the very significant issue that existing workers, mindful of the ugly trend, are worried that the next swing of the axe will hit them.

In other words, it’s bad right now and likely to get worse. One of the biggest casualties of the whole affair will doubtlessly be the retail sector, as it gets pounded like a veal scaloppini.

Your Christmas Stock Shopping List Should Include These Three Retailers

Since the market hit the skids, I’ve been a big advocate of compiling stock watchlists to keep on your radar. That way, when it’s time to pull the trigger, you’ll have all the resources and information right there at your fingertips. All you’ll need to do is take a deep breath and fire.

So, with that happier thought in mind, here are some retailers you might want to start thinking about:

~ Kohl’s (NYSE: KSS)

Kohl’s is in an excellent position to take advantage of the bankruptcies of competitors such as Mervyns. According to Toronto-based Thomas Weisel Partners, Kohl’s has picked up 20% of Mervyn’s market share in areas where Mervyns had to exit.

Since Mervyns plans on closing another 149 stores in California, that gives Kohl’s even more room to maneuver, which should provide a holiday boost.

~ Wal-Mart (NYSE: WMT)

There’s no doubt that Wal-Mart’s core demographic is feeling the pinch in this economy, with little leeway to buy new televisions and other extravagances.

However, while they can easily cast aside those extras, they still need necessities such as food and clothing – areas where Wal-Mart excels because of its lower prices.

And speaking of lower prices, you’re likely to see Wal-Mart attracting new customers these days, too. Gone are the good old days when you could just stroll into Coach and treat yourself to a new purse or briefcase. Luxuries like that are off the table for now, so Wal-Mart options are looking better and better to many people.

As CEO Lee Scott states: “Wal-Mart has momentum as we move into the fourth quarter. At a time when our customer is feeling the pressure of a tough economy, Wal-Mart’s price leadership is more important than ever.”

One caveat, though. Despite blowing third-quarter estimates away, with profits rising 10%, Wal-Mart has trimmed its fourth-quarter profit outlook, due to economic concerns.

~ Dollar Tree (Nasdaq:DLTR)

Not surprisingly, Dollar Tree shares are up significantly this year. In fact, the company boasts the best margins in the business right now. It chalked up double-digit earnings growth over the past two quarters and consumer traffic is increasing. The stock is trading at just 1.09 times its expected 14% growth rate. We don’t advocate shoplifting, but this is a steal.

… And A Happy New Year

The retail picture isn’t pretty. But it’s not completely ruined.

There will be a time when it will be right to get back in to stocks like Whole Foods (Nasdaq:WFMI) and Tiffany’s (NYSE:TIF). And that time will be before the economy is showing signs of recovery.

Why? Because we want to buy them cheaply when nobody else wants them. But we still have time before that occurs. In the meantime, concentrate your efforts on the companies like the ones I mentioned above – ones that should thrive and emerge stronger because of the hardship.

Source: Grandma Got Run Over By A Reindeer: How You Can Profit From The Retail Sector Bloodbath This Holiday Season