Christmas shopping season is just beginning! UBS bets on the "valuation expansion" narrative of US soft-line retail in 2026.

UBS Group AG recently released its 2026 US stock market retail sector investment outlook report. Analysts from UBS Group AG indicated that the performance of the "softlines retail" sector in the 2025 "Thanksgiving + Black Friday" holiday shopping season exceeded expectations, and they expect the upcoming Christmas shopping season and consumer sentiment at the beginning of 2026 to strengthen further. Combining monthly consumer surveys, macroeconomic indicators, and overall valuation/fundamentals of retail stocks covered by UBS Group AG, UBS Group AG maintains a bullish stance on the softlines retail sector and is "more optimistic" than last month, expecting a new round of "valuation lifting" bull market trend for softlines retail. "Softlines retail" mentioned in the report by UBS Group AG refers to a detailed division of product categories in the retail industry, typically referring to products and retail subsectors focused on textiles/flexible materials, mainly "wearable/home soft goods", including apparel, footwear, accessories, as well as homewares such as bedding, towels, and linens (different institutions may also include lingerie, some personal care, and soft consumables). In contrast, the opposite of "softlines retail" is "hardlines", generally referring to more durable/hardware retail categories, such as appliances, electronics, furniture, tools, and sports equipment. Strong performance in the 2025 holiday season, expected strong growth in 2026 Statistics compiled by UBS Group AG show that the Thanksgiving holiday shopping season was "steady": the latest media surveys show that the proportion of shoppers planning to spend "more" on the Thanksgiving shopping season compared to the previous year is higher than those planning to spend "less". UBS Group AG also reported that about 70% of respondents plan to participate in retail promotions after the Christmas holiday season, and about 44% of respondents have already completed their holiday shopping (faster than the same period last year). An exclusive survey conducted by UBS Group AG in December showed that as many as 27.0% of respondents plan to spend more in the holiday season compared to last year, indicating a significant growth in holiday shopping season data. UBS Group AG also mentioned that the expected data constitutes a "net long bias" difference of about +380bp; UBS Group AG emphasized that this difference is better than the 11-year average (about +300bp) and shows an improvement compared to the previous month. UBS Group AG stated that post-Christmas promotions will extend the "tail" of the Christmas holiday shopping season, with statistics showing that as many as 70.1% of consumers plan to participate in retail promotions after Christmas, higher than the average of the past 10 years by about +230bp, providing significant support for the conclusion of the holiday shopping season for softlines retail. Regarding the trend of this year's Christmas holiday shopping season, UBS Group AG said "higher shopping completion, faster demand realization": as of around December 20th, 44.2% of consumers said their holiday shopping was already completed, which is about +160bp higher than the same period last year; as for highlights of this year's holiday shopping season, UBS Group AG mentioned that clothing remains the number one gift category, while jewelry shows stronger growth momentum in the holiday shopping season. UBS Group AG analysts prefer "softlines retail styles" in 2026 Overall, UBS Group AG analysts prefer three subsectors in the softlines retail sector for 2026, which they believe will capture stronger "stock market alpha excess value" compared to the entire US retail market sector. First is the brand and trend-driven apparel/footwear subsector, which focuses on companies with strong brand power and product cycles. Second is the off-price retail companies, which can combine defense with market uncertainty and share acquisition, leaning towards using stable traffic and cost-effectiveness to hedge against any macro fluctuations. Lastly, there are categories benefiting from holiday seasons and gift attributes, with a focus on apparel and stronger marginal growth momentum in jewelry. UBS Group AG explicitly mentioned in the outlook report that "apparel remains the largest gift category in the holiday shopping season, while jewelry shows stronger growth momentum in the holiday shopping season." Core softlines retail stocks named with a "Buy" rating by UBS Group AG UBS Group AG pointed out that the market is worried about a weakening trend in low-income consumer spending, but their research shows mixed results in low-income indicators; more importantly, the middle-to-high-income group, according to BLS data, contributes about 90% of industry spending, and most publicly traded softlines companies mainly target middle-to-high-income customers, so their "strengthened consumer sentiment" is crucial for pricing in the softlines retail sector. For example, UBS Group AG emphasized that middle-to-high-income consumers are willing to pay more for emotionally satisfying products (such as cutting-edge sports leisurewear or designer collaborations, with a premium rate increasing from 15% in 2024 to 20%). Therefore, companies focusing on functional and fashionable combinations like On Holding (ONON.US) and those around the revival of classic brands like Ralph Lauren (RL.US) are core beneficiaries. Overall, UBS Group AG reported that consumer sentiment is overall positive in December, and they expect a strong finish to the holiday season and a very optimistic start to 2026; they also believe that the expectation of fiscal stimulus led by the Trump administration's "big and beautiful bill" may accelerate sales growth in the softlines retail industry in early 2026. Although the overall P/E of the softlines sector is higher than historical averages, UBS Group AG analysts see significant upward potential and expect further P/E expansion in softlines retail stocks as consumer confidence and savings continue to expand, along with the expansion of middle-to-high-income spending and fiscal stimulus driving. Therefore, they continue to be bullish and prefer these Buy-rated targets. Buy-list for brands/footwear trend subcategories (the alphabets represent specific US stock codes): ONON, DECK, BIRK, UAA, PVH, KTB, LEVI, RL, ANF, AEO, ATZ, VSCO Off-price types: TJX, BURL; Gift attributes/Jewelry types: SIG