Holiday Retail 2024: A Season of Uncertainty and Shifting Sands
This year’s holiday shopping season presents a complex picture for retailers. A late Thanksgiving, unusually warm weather, and lingering effects from the presidential election have created a volatile market. While analysts predict some pent-up consumer demand and increased spending, a shorter shopping season and macroeconomic uncertainties are tempering expectations. The outcome hinges heavily on the performance of key shopping events like Black Friday and Cyber Monday, which could determine the winners and losers of the season. The battle for consumer attention is fierce, with retailers pulling out all the stops to entice shoppers amid a flood of early promotions and distractions.
Key Takeaways: Navigating the Holiday Retail Maze
- Uncertain outlook: Analysts forecast mixed results, with some predicting stronger consumer spending while others anticipate weaker growth than in previous years.
- Black Friday’s importance: Black Friday and Cyber Monday are crucial for retailers, potentially making or breaking their holiday season performance.
- Winners and losers: Retailers like Walmart are positioned favorably, while others like Target are facing challenges, highlighting the divergence in performance within the industry.
- Consumer behavior shifts: Consumers show a tendency towards concentrated shopping around major events and a potential delay in purchasing until December.
- Strategic diversification: Home improvement retailers might offer a safer investment bet due to their historical outperformance during the holiday season.
A Perfect Storm for Retailers?
The holiday season of 2024 presents a unique set of hurdles for retailers. The later-than-usual Thanksgiving significantly shortened the shopping period, leaving less time for consumers to make purchases and retailers to capitalize on the season’s peak sales. Compounding the problem, unusually warm weather across much of the country has dampened the demand for traditional cold-weather apparel such as sweaters, jackets, and boots. This unexpected weather pattern has disrupted typical buying habits, adding another layer of complexity to sales forecasts.
Adding to the mix, the lingering impact of this year’s presidential election continues to affect consumer spending behavior. The political climate has caused some uncertainty in the market and further contributes to the overall unpredictability of the holiday season. This uncertainty, combined with other macroeconomic factors and geopolitical events, has created a volatile environment for retailers to navigate. Despite these challenges, some hope remains.
Pent-Up Demand and Shifting Consumer Spending
Industry analysts are still cautiously optimistic, pointing to evidence of pent-up consumer demand. Citigroup’s survey suggests that 42% of 2,800 adults plan to spend more on gifts this year, compared to 22% who expect to spend less. This suggests a potential for increased spending overall, but the actual impact remains to be seen. While Citigroup projects a 13% average increase in holiday spending, other firms like JPMorgan and the National Retail Federation are more conservative, forecasting growth rates of between 2.5% and 3.5% — the slowest growth since 2019. This divergence highlights the uncertainty that pervades this year’s predictions.
Walmart’s Winning Strategy vs. Target’s Struggles
The contrasting performances of Walmart and Target illustrate the stark realities of the current retail landscape. While Walmart enjoys record-high shares, up 72% this year, and continues to exceed sales forecasts by successfully increasing its customer base, even attracting higher-income shoppers, Target’s earnings have been deeply disappointing. Target’s struggle highlights the ongoing challenges of maintaining market share in the face of stiff competition from industry leaders like Walmart.
Both retailers have noted a concentration of shopping around major events, underscoring the importance of Black Friday and Cyber Monday in determining their holiday success. Walmart’s improved online offerings are particularly well-positioned to benefit from time-stressed shoppers looking for convenience, enhancing its competitive standing this season.
The Battle for Consumer Attention
Retailers are facing a significant challenge in capturing consumer attention. Early November marked back-to-back 9% declines in weekly retail sales, indicating a noteworthy decrease in consumer buying activity compared to the same period last year. This lethargic consumer behavior complicates the already challenging retail landscape.
The abundance of early promotions is a double-edged sword. While some consumers are rushing to take advantage of deals, fearing they may not get better offers later in the season, others are waiting for better value, creating a sense of uncertainty in the market. This flood of promotions, coupled with an array of shopping choices and distractions are creating increased competition for consumer attention, according to Marshal Cohen of Circana.
The Importance of Value and Timing
“The competition for the consumer’s attention keeps expanding,” Cohen stated. “Toys now compete with beauty, tangible gifts compete with experiences, and top shopping days compete with other activities, like football on Black Friday. Not only do marketers need to break through the distraction and capture consumers’ attention with the best deals, but they also need to convince them of the value they are getting, and then hold to it.” This highlights the crucial need for retailers to communicate the value proposition of their products and convince consumers of the appeal of making their purchases earlier rather than later.
Black Friday: The Make-or-Break Event
Black Friday is projected to be the busiest shopping day of the season, according to Sensormatic Solutions, a company that tracks in-store foot traffic. However, analysts also predict a significant amount of last-minute shopping, adding another dimension to the unpredictable nature of this year’s holiday season. There’s a risk that leftover inventory, particularly in categories like winter apparel, might force retailers to deeper-than-anticipated price cuts, impacting profit margins.
Morgan Stanley’s Alex Straton cautions that companies with elevated inventories such as Nike, Skechers, Tapestry, and Under Armour warrant close observation. Last year’s experience provides a potential template; many retailers held back on early promotions, hoping for increased demand later in the season, which ultimately materialized. This year might follow a similar pattern.
Looking Beyond the Usual Suspects
JPMorgan’s Christopher Horvers suggests a more cautious approach, advising investors to consider companies that are traditionally less susceptible to the boom-or-bust nature of the holiday season. He notes the historical outperformance of Home Depot and Lowe’s in November and December, with monthly gains often exceeding 4%. While analysts are divided on the outlook for both Home Depot and Lowe’s, their reputation as more stable investments compared to some other retailers provides an interesting counterpoint to the volatility of the overall retail market.
Citi’s consumer survey reveals a preference towards shifting spending habits; consumers in this year’s survey are more inclined to wait until December to make their purchases than last year. The highest increases in planned spending are seen in categories such as pet care, athletic apparel, jewelry, and watches, indicating a change in consumer preferences which could affect retailers who focus on these areas.
In conclusion, the 2024 holiday season promises a rollercoaster ride for retailers. While pent-up demand and increased spending in some sectors offer cause for optimism, macroeconomic uncertainty, weather-related challenges, and intense competition for consumer attention make this year’s outlook more uncertain than usual. Black Friday and Cyber Monday will be critical, yet the overall success of retailers this year will hinge on their ability to navigate this complex and ever-changing market landscape.
