A Tale of Two Holiday Seasons: Retail Winners and Losers in the 2024 Holiday Rush
The 2024 holiday shopping season is shaping up to be a stark contrast of fortunes for retailers. While some are thriving amidst cautious consumer spending, others are struggling to meet expectations. Recent earnings reports reveal a significant divide, with companies like Walmart posting strong sales growth, while others, including Target and Kohl’s, are reporting disappointing results. This divergence highlights the increasing selectivity of shoppers navigating a still-sensitive economic landscape, even as inflation cools. The success stories are emphasizing value and strategic inventory management, while those falling behind appear to be grappling with overstocked inventories and a mismatch between consumer demand and product offerings. The race is on to capture the discretionary spending of those who are still willing to splurge this holiday season.
Key Takeaways: Unpacking the Holiday Retail Divide
- Disappointing Q3 for some major retailers: Target, Kohl’s, and Best Buy reported underwhelming third-quarter earnings, with early holiday deals failing to significantly boost sales.
- Strong performers capitalize on value and need: Walmart, Dick’s Sporting Goods, and Abercrombie & Fitch saw robust sales growth, demonstrating the power of offering value and appealing to both “needs” and “wants”.
- Cautious consumer spending persists: Even with easing inflation, consumers remain selective, prioritizing value and essential purchases over discretionary spending. This selective spending is driving the chasm between retailers.
- Strategic inventory management is crucial: Retailers with the right mix of inventory – especially those catering to the “needs” segment – are faring better than those with overstocked or less-relevant products.
- The future remains uncertain: While holiday spending is projected to increase, the extent of growth remains uncertain, and retailers are adopting diverse strategies to attract shoppers and meet their cautious spending habits.
Setting Expectations: Divergent Forecasts for the Holiday Quarter
The National Retail Federation (NRF) predicts a modest 2.5% to 3.5% increase in holiday spending compared to 2023, totaling between $979.5 billion and $989 billion. This represents a slower growth rate than the previous year. While this overall projection suggests growth, the individual retailer forecasts paint a far more varied picture. Abercrombie & Fitch and Dick’s Sporting Goods have optimistically raised their full-year outlooks, expecting a strong holiday season. “We’ve seen a strong early response to our holiday assortments, and we are ready and excited for the peak selling period to kick into high gear this week,” stated Abercrombie’s Chief Operating Officer, Scott Lipesky. However, Nordstrom and Walmart expressed more cautious outlooks, acknowledging slower shopping trends in late October. Walmart, while raising its sales forecast overall, clearly stated that consumers remain price-conscious and are delaying purchases in anticipation of better deals.
The Case of Walmart and the Resurgence of General Merchandise
Walmart’s performance is particularly noteworthy. For the second consecutive quarter, their general merchandise sales (excluding groceries and essentials) increased year-over-year, marking a significant turnaround after 11 quarters of decline. This shift is attributed to both easing inflationary pressures on household budgets and Walmart’s successful expansion of its third-party marketplace, offering a wider selection of discretionary items. CFO John David Rainey highlighted the promising start to the holiday season, but stressed ongoing consumer caution and price sensitivity.
Target and Kohl’s Struggle with Flat Forecasts and Leadership Changes
In contrast, Target and Kohl’s issued downbeat forecasts, highlighting the challenges faced by some retailers. Kohl’s forecasted a deeper-than-expected sales drop and announced a CEO change, adding to the uncertainty surrounding the company’s holiday performance. Target projected roughly flat comparable sales for the holiday quarter, outlining several marketing initiatives including price cuts on 2,000 additional items and a series of promotional tie-ins with licensing deals intended to attract shoppers.
Wants vs. Needs: Shifting Consumer Priorities in a Cautious Economy
The disparity in retail performance isn’t simply a matter of random chance. According to Neil Saunders, managing director of GlobalData Retail, Target, Kohl’s, and similar department stores are facing tougher conditions because they predominantly sell “wants” rather than “needs.” Shoppers are increasingly prioritizing experiences and gifts with practical value. “The little stupid games and novelty socks and things — those are the areas where people are really cutting back a bit because they’re just meaningless purchases, and people don’t want to waste money, even if it’s just for a gift,” Saunders noted. “They want the gifts to be useful and relevant.” This shift in consumer behavior necessitates a well-considered inventory strategy, a lesson that some retailers appear to be learning. Overstocking items that fall into the “wants” category without ensuring strong customer demand could lead to steep discounts and reduced profitability. This is evident from reports indicating that certain retailers have a large quantity of seemingly “unnecessary” products in their inventory.
The Importance of Perceived Value: More Than Just Price
Marshal Cohen, chief retail advisor for Circana, emphasizes that the winning formula this holiday season isn’t solely about price but also the perception of value. Retailers need to offer the “best bang for the buck,” combining competitive pricing with the novelty and quality that make purchases appealing. Cohen also astutely points out that retailers are often prepared with external factors to potentially explain away poor financial performances. “Every year, retailers always position themselves to have a good reason why they may not make their numbers,” Cohen stated. “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’re hedging their bet that they may have some challenges ahead.” This highlights the pressure on retailers to deliver strong results during the crucial holiday season. The competitive landscape is ferocious, and those that fail to meet expectations or adapt strategies to changing consumer behavior could face significant repercussions.
The 2024 holiday shopping season is proving to be a litmus test for retailers. Successfully navigating these changing consumer patterns requires a blend of offering strong value, managing inventory effectively, and understanding the subtle shifts in consumer preferences, and the winners will be those that effectively adapt to meet the demands of the moment.
