Last week was a big one for earnings results from major retailers, such as Abercrombie & Fitch, Dick’s Sporting Goods and Urban Outfitters among those boasting a better result in the third quarter and projecting optimism about sales at the end of the year. However, other giants in the space — think Kohl’s, Macy’s and Target — are struggling, especially given the success of discount competition like Walmart and Costco. Research shows these big box stores are wooing budget-conscious shoppers, taking advantage of the subtle uptick sentiment now that inflation got cold.
Emphasis on values ​​and accessibility creates a stark divide between winners and losers in the industry. Many of the apparent winners, meanwhile, carry the momentum into what matters most holiday season as Americans reach deep into their wallets to splurge on gifts for family and friends.
During this holiday season, consumers plan to spend an average of $2,100 on top of their monthly expenses, according to the annual poll from Bank of America Institute—a 7% jump over last year. While 62% of respondents expected to feel financial pressure over vacation costs, that number is down from 67% who expressed those feelings in 2023.
Stephanie Link, Chief Investment Strategist at Hightower Advisors, said recently Wealth that consumer power could encourage prolonged market set.
“We are a nation of spendthrifts,” she said, adding that the statement holds regardless of whether Americans have cash to pay for vacation expenses or have to run up credit card balances.
Retail is preparing for a shortened holiday season
Despite this, consumers are still paying more for necessities and plan to stretch their dollar, according to BofA Institute. Almost three out of five respondents plan to cut prices or shop more at discount stores during the holidays. The report states that these results are in line with trends in clothing stores.
In August, Abercrombie CEO Fran Horowitz indicated that could be bad news for the company, with its warnings of an “increasingly uncertain” economic environment in the second half of 2024 sending shares down 15%. Instead, she ended up bragging record sales in the third quarter and issuing a full-year forecast that topped Street expectations.
“We had a strong start to the quarter, seeing positive results in our holiday assortment,” she said during the earnings call. “Most of the sales in the fourth quarter are ahead of us.”
BofA analysts, however, recorded that the heavy use of promotions in October and November could threaten sales in the last month of 2024. Even as Dick’s raised its guidance for the full year after a strong back-to-school season, for example, management indicated it was wary of excessive expectations amid a shortened holiday season. With only 27 days between Thanksgiving and Christmas, executive director Lauren Hobart noted, there are five fewer shopping days compared to last year.
Now, of course, Black Friday and Cyber ​​Monday are in the rearview mirror. BofA said it expects a deep lull between that rush and the pre-Christmas weekend, with department stores still relying heavily on promotions to drive traffic in cramped window shopping.
“After a year under pressure from consumer spending amid a volatile macro backdrop and more recently the election, many retailers are also leaning heavily on (Q4) to deliver strong corporate,” CEO Lorraine Hutchinson and fellow analysts Christopher Nardone, Melanie Nuñez, and Mary Sport wrote in a note Monday.
It looks like some big names will disappoint though. Kohl’s outgoing CEO Tom Kingsbury took the blame as a company reported one 11th flat quarter sales decline and further lowered the revenue forecast for this year. According to data from S&P Global Market Intelligence, its shares are currently the sweetest in the US.
Kingsbury will be replaced Walmart CEO Ashley Buchanan, currently head of the arts and crafts chain Michaelsin January. It’s hard to fault Kohl’s for distilling the experience from Walmart, which comes out on top Fortune Global 500 list and saw its shares outperform those of blue-chip tech companies Apple and Alphabet — not to mention e-commerce the giant Amazon—this year.
Consumers may be just gradually loosening their belts this holiday season. For retailers who execute, however, there appears to be money to be made.
