Retail winners distance themselves from the rest


Shoppers outside a Target store ahead of Black Friday, in Clifton, New Jersey, on Nov. 26, 2024.

Victor J. Azul | Bloomberg | fake images

As the holiday season heats up, retailers have a new opportunity to appeal to even the most selective shoppers and persuade them to splurge on discretionary items like party outfits, makeup or toys.

But free spending season isn't boosting sales for everyone.

Retail earnings reports from the past two weeks have illustrated a stark divide between brands that are gaining sales and those that are losing.

Aim, Kohl's and Best buy each reported disappointing third-quarter results as early vacation deals failed to significantly boost their businesses. On the other hand, Walmart, Dick's Sporting Goods and Abercrombie & Fitch posted strong sales in their most recent quarters.

The reports come after a more than two-year stretch of inflation in the United States that caused shoppers to become selective about spending while balancing higher prices on food, housing, restaurant meals and more. Those patterns have persisted even as inflation has cooled, forcing retailers to work harder to get customers to open their wallets.

Demanding consumers have made the gap between successful and struggling retailers even starker heading into the holiday shopping season, said Neil Saunders, managing director at GlobalData Retail.

“People are still spending, but they may not have as much to spend,” he said. “So instead of buying five things, they could buy three. And in that environment, it's easy to say, 'Well, where am I not going to buy things? Who am I going to eliminate?' And they will eliminate weak retailers.”

Set expectations

Holiday spending in November and December is expected to increase 2.5% to 3.5% compared to 2023 and range from $979.5 billion to $989 billion, according to the National Retail Federation, a retail trade group. This is a smaller year-on-year increase than the 3.9% jump recorded between the 2022 and 2023 holiday seasons, when spending amounted to $955.6 billion. The NRF figure excludes car dealerships, gas stations and restaurants.

However, retailers' forecasts for the Christmas quarter have varied widely. Dick's and Abercrombie raised their full-year outlooks this week and said they expect a strong holiday shopping season.

“We've seen a strong early response to our holiday assortments, and we're ready and excited for the peak sales period to accelerate this week,” Abercrombie Chief Operating Officer Scott Lipesky said on the company's earnings conference call. on Tuesday.

Nordstrom and Walmart He struck a more cautious note.

On Nordstrom's earnings call Tuesday, CEO Erik Nordstrom said the department store owner noticed slower shopping trends in late October and factored them into its forecast. The company offered a modest adjustment to its guidance, raising the lower end of its sales forecast, despite beating Wall Street's third-quarter sales expectations.

Walmart Chief Financial Officer John David Rainey told CNBC that the holidays are “off to a pretty good start,” but that consumers are still being careful with spending and hoping for better prices.

The large retailer improved its sales forecasts and its results, however, reflected a promising change in trend. For the second consecutive quarter, Walmart's general merchandise sales (items outside the grocery department or home essentials aisles) increased year over year. Before that, general merchandise sales had declined for 11 consecutive quarters.

Rainey said that swing likely reflects both the easing of inflationary pressures on families as food prices decline and the company's own ability to sell more discretionary items as it adds more to its website through your third-party marketplace.

Target and Kohl's had pessimistic forecasts. Kohl's warned of a bigger-than-expected sales decline and announced a CEO change ahead of the crucial shopping season.

Target said it expects comparable sales for the holiday quarter to remain roughly flat. That metric includes sales on Target's website and in stores open for at least 13 months.

Even with its lackluster forecast, Target emphasized the ways it is trying to capture shoppers' attention and money. In an earnings conference call on Nov. 20, Chief Commercial Officer Rick Gomez said Target would sell more than 150 items inspired by the Universal movie “Wicked,” including clothing, food, beauty items and toys. She's also releasing an exclusive vinyl and book for Taylor Swift fans on Black Friday.

Target will also lean on a tried-and-true retail tactic to try to drive traffic: It will reduce prices on an additional 2,000 items for the holiday season, after reducing them by 5,000 items earlier this year.

Wants and needs

GlobalData's Saunders said Target, Kohl's and department stores like Macy's are in a tougher spot this holiday season as they sell more wants than needs.

Customers are “more inclined toward experiences” this year and want to purchase gift items that have practical value.

“Stupid little games, novelty socks and stuff like that are the areas where people are really cutting back a little bit because they're mindless purchases, and people don't want to waste money, even if it's just for a gift.” said. “They want gifts to be useful and relevant.”

Some businesses may have purchased too much inventory heading into the shopping season, or the wrong mix of items. At Kohl's, for example, Saunders said he's seen a lot of clothing and small appliances, like coffee makers and air fryers, on display as the retailer prepares for Black Friday. If buyers don't show up in full force, those items could end up on the clearance rack.

“I just look at it and think, 'Is this going to sell?'” he said. “Because there's still no foot traffic in stores. So why is that going to change during Black Friday?”

Marshal Cohen, chief retail adviser at market research firm Circana, said the winning formula this holiday season will be value, not only with lower prices but also with the perception of “the best bang for the buck” with items that have novelty or quality.

And, he added, retailers are already looking for outside factors to blame if the holiday season is disappointing.

“Every year, retailers always position themselves to have a good reason why they can't hit their numbers,” Cohen said. “So when they talk about the weather, or they talk about a dock strike, or they talk about supply chain issues, it has more to do with the fact that they are hedging their bet that they may have some challenges ahead.”

“I always say, 'Okay, here comes the excuse this year. What will it be?'”

Disclosure: Comcast is the parent company of CNBC and NBCUniversal. NBCUniversal distributed “Wicked.”

—CNBC's Gabrielle Fonrouge contributed to this report.

scroll to top