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Retailer earnings reports over the past two weeks have highlighted a stark divide between brands that are selling well and those that aren’t. Target, Kohl’s and Best Buy each reported disappointing results in their most recent quarters, while Walmart, Dick’s Sporting Goods and Abercrombie & Fitch posted strong sales. Neil Saunders, managing director of GlobalData Retail, said shoppers had less money at their disposal and were cutting out weaker retailers.
As the holiday season heats up, retailers have a new opportunity to woo even the most selective shoppers and persuade them to splurge on discretionary items like party outfits, makeup, and toys.
But free spending season doesn’t increase sales for everyone.
Retailer earnings reports over the past two weeks have highlighted a stark divide between brands that are selling well and those that aren’t.
Target, Kohl’s and Best Buy each reported disappointing third-quarter results as early holiday sales failed to significantly boost business. Meanwhile, Walmart, Dick’s Sporting Goods and Abercrombie & Fitch posted strong sales in the latest quarter.
The report comes after more than two years of inflation in the U.S., with shoppers choosing to balance spending against rising prices on things like groceries, housing and restaurant meals. That pattern persists even as inflation cools, forcing retailers to work harder to get customers to open their wallets.
Neil Saunders, managing director at GlobalData Retail, said the gulf between successful and struggling retailers was becoming more pronounced in the lead-up to the Christmas shopping season due to consumer preferences. He said there was.
“People are still spending, but perhaps not as much,” he said. “So instead of them buying five things, they might buy three things. And in that environment, they’re saying, ‘Okay, where are we not buying things? Who are we excluding? ‘And the weaker retailers will be weeded out. ”
Set expectations
Holiday spending in November and December is expected to increase 2.5% to 3.5% compared to 2023, to a range of $979.5 billion to $989 billion, according to the National Retail Federation, a retail trade group. This is a smaller year-over-year increase compared to the 3.9% increase during the 2022-2023 holiday season, when total spending was $955.6 billion. NRF’s numbers do not include car dealerships, gas stations or restaurants.
But retailers’ forecasts for the holiday quarter vary widely. Dick’s and Abercrombie this week raised their full-year forecasts, predicting strong year-end sales.
“Early response to our holiday assortments has been strong, and we are excited to see peak sales prepare to begin in earnest this week,” Abercrombie Chief Operating Officer Scott Lipesky said on Tuesday’s earnings call. “There is,” he said.
Nordstrom and Walmart took a more cautious stance.
During Nordstrom’s earnings call on Tuesday, CEO Eric Nordstrom said the department store owner noticed a slowdown in shopping trends in late October and factored that into its forecasts. The company raised the lower end of its sales forecast and offered modest guidance adjustments, even though it beat Wall Street’s third-quarter sales expectations.
Walmart Chief Financial Officer John David Rainey told CNBC that the holiday season is “off to a pretty good start,” but that consumers remain cautious with their spending and are waiting for better prices. spoke.
However, the major retailer raised its sales forecast, and the results reflected an encouraging change in trends. Walmart’s general merchandise sales (products outside the grocery and household essentials aisles) increased year over year for the second consecutive quarter. Until then, sales of general merchandise had been declining for 11 consecutive quarters.
Rainey said this change is due to both the easing of inflationary pressures on households as food prices fall, and the company’s ability to sell more discretionary items by adding products to its website through third-party marketplaces. It is likely that this reflects the
Target and Coles had a dull outlook. Kohl’s warned of a sharper-than-expected drop in sales and announced a CEO change ahead of the crucial shopping season.
Target said it expects comparable sales to be roughly flat in the holiday quarter. This metric includes sales on Target’s website and at stores that have been open for at least 13 months.
Despite the lackluster outlook, Target emphasized how it plans to capture shoppers’ attention and profits. Target will carry more than 150 products inspired by the Universal movie “Wicked,” including clothing, food, beauty products and toys, Chief Commercial Officer Rick Gomez said during a Nov. 20 earnings call. said. Limited edition records and books will also be available for Taylor Swift fans on Black Friday.
Target also plans to rely on proven retail strategies to drive traffic. After cutting prices on 5,000 items earlier this year, the company plans to cut prices on another 2,000 items for the holiday season.
wants and needs
GlobalData’s Sanders said department stores like Target, Kohl’s and Macy’s are in even tougher conditions this holiday season, as they sell more wants than demand.
Customers are “becoming more experiential” this year and want to buy gift items that have practical value.
“Things like silly games and novelty socks are areas where people are actually saving a little bit, because they’re just pointless purchases and people don’t want to spend money even if it’s just a gift. “Because I don’t want to waste it,” he said. “They want their gifts to be useful and relevant.”
Some businesses may have purchased too much inventory or mixed the wrong products for the shopping season. At Kohl’s, for example, Sanders said he saw a lot of clothing and small appliances like coffee makers and air fryers on display as the retailer prepared for Black Friday. If shoppers don’t show up all at once, those items can end up piling up on clearance racks.
“I just look at it and think, ‘Will this sell?'” he said. “Because we’re not seeing foot traffic to stores yet. So why would Black Friday change that?”
Marshall Cohen, chief retail advisor at market research firm Circana, says value is the winning formula this holiday season, with products that offer novelty and quality, not just low prices, offering “the best value for money.” He said it would be recognized as such.
And retailers have already assumed that external factors will be blamed if the holiday season slumps, he added.
“Each year, retailers always position themselves as having a legitimate reason for not achieving sales,” Cohen said. “So when they talk about the weather, when they talk about dock strikes, when they talk about supply chain issues, it has more to do with the fact that they’re hedging bets that they might face some challenges down the road. There is.”
“I always say, ‘Okay, this year is an excuse. What’s going to happen?’
Disclosure: Comcast is the parent company of CNBC and NBCUniversal. NBCUniversal distributed “Wicked”.
—CNBC’s Gabriel Fonrouge contributed to this report.
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