The holiday shopping season is in full swing, offering retailers a prime opportunity to capture consumer dollars.
However, the season’s buoyancy isn’t lifting all boats.
Recent earnings reports reveal a widening gap between retail winners like Walmart and Abercrombie & Fitch and underperformers such as Target and Kohl’s.
The disparity underscores the challenges retailers face as consumers, burdened by two years of inflation and rising costs, remain selective in their spending habits, according to a report by CNBC.
According to Neil Saunders, managing director at GlobalData Retail, “People are still spending, but they perhaps don’t have as much to spend. This environment forces consumers to cut out weaker retailers.”
Modest holiday growth forecast amid cautious spending
The National Retail Federation (NRF) predicts holiday spending will rise by 2.5% to 3.5% year-over-year, totalling between $979.5 billion and $989 billion.
While higher than last year’s $955.6 billion, the growth is more subdued compared to the previous year’s 3.9% increase.
Retailers’ forecasts for the season vary widely.
Abercrombie & Fitch and Dick’s Sporting Goods raised their full-year outlooks after robust third-quarter results.
Abercrombie’s Chief Operating Officer, Scott Lipesky, noted, “We’ve seen a strong early response to our holiday assortments.”
Conversely, Nordstrom and Walmart remain cautious.
Walmart CFO John David Rainey acknowledged a “pretty good start” to holiday sales but highlighted continued consumer hesitancy.
Yet, Walmart’s results showed promise, with general merchandise sales climbing for the second consecutive quarter after an 11-quarter decline.
Target and Kohl’s delivered lackluster projections.
Target expects flat comparable sales for the holiday quarter, while Kohl’s foresees a deeper-than-expected decline, compounded by a CEO transition ahead of the critical shopping season.
Retail strategies: value and relevance take center stage
Retailers are leaning on aggressive strategies to lure consumers.
Target is banking on exclusive offerings, including merchandise inspired by Universal’s Wicked movie and limited-edition Taylor Swift collectibles for Black Friday.
Price cuts also play a central role, with Target slashing prices on 2,000 additional items for the season.
However, Saunders warns that retailers like Target and Kohl’s face hurdles because their product mix leans heavily on “wants” rather than “needs.”
Practicality and value dominate this year’s consumer mindset, with buyers favoring gifts that are useful and high-quality over novelty items.
“People want the gifts to be useful and relevant,” Saunders said, emphasizing a shift away from “meaningless purchases” like novelty socks or gimmicky games.
Inventory missteps could spell trouble
Inventory management remains a critical factor.
Retailers that overstock or misjudge consumer preferences risk steep markdowns after the holidays.
Kohl’s, for example, has heavily stocked small appliances and apparel ahead of Black Friday.
Without sufficient foot traffic, these items may end up on clearance racks, Saunders noted.
Marshal Cohen, chief retail advisor at Circana, added that consumers are prioritizing “the best bang for the buck,” seeking both affordability and quality.
This focus amplifies the pressure on retailers to align offerings with shopper expectations.
Blame game looms for underperforming retailers
As the season unfolds, some retailers are already bracing for potential shortfalls.
Cohen observes a recurring pattern: retailers citing external factors like weather or supply chain issues to explain underwhelming results.
“Every year, retailers always position themselves to have a good reason why they may not make their numbers,” he said.
“It’s as if they’re hedging their bets against challenges ahead.”
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