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If you’re a retailer and it’s the holiday season, what you want most is for consumers to feel urgency. Forget it this year. Unlike last year, holiday shoppers don’t have to fear empty store shelves. Supply chain bottlenecks have largely been eliminated and some retailers have too many items. Parents won’t argue over a must-have holiday toy. There isn’t one. And even when you see the words “Black Friday”, your eyes can dim. Consumers have been hearing about door deals since early October. “We don’t see a sense of urgency. Period,” said Julie Ramhold, consumer analyst at online shopping site Dealnews.com. Although there is still interest in shopping, there is no pressure to buy, Ramhold said. According to her, one of the reasons is the lack of mandatory gifts. But beyond that, after months of rising gas, food and rental prices, buyers are waiting – and watching – and watching to get the best deal possible. “It’s a difficult position to be in,” she said. “A lot of families are coming together for the first time in a long time and they don’t want to skimp, but they don’t have the budget.” Investors should be just as careful with their money. As this week’s retail earnings reports have shown, there will be clear winners and losers. The right choice likely comes down to finding well-managed companies that are quick to respond to changes in consumer behavior, industry observers say. Companies that are seen as offering great value, not just low prices, should also be on the shopping list, they said. And it doesn’t hurt if the retailer caters to higher-income consumers who will have bigger budgets and are less sensitive to inflation, or if the retailer sells items deemed more important, like food. A very ‘bad’ Christmas The retail trade group, the National Retail Federation, has estimated that holiday sales will grow 6% to 8% year-over-year to between $942.6 billion and $960.4 billion. Other forecasts also fluctuate in this range. While this growth rate may seem solid compared to the 4.9% CAGR over the past decade, the outlook loses its luster when the impact of inflation is taken into account. For most of the year, inflation rose by about 8% or more. Thus, after adjustment, real profit remains unchanged or decreases. Kathy Thomas, who heads the Kearny Consumer Institute, an in-house think tank for global strategy and management consultancy Kearney, said she is “optimistic” about the holiday season, although she expects consumers to be “very tactful” in their spending. “They went to Walmart because there’s a great perception of value there — even among high-income consumers,” she said, referring to the discount retailer’s fiscal third quarter results on Tuesday. Walmart said more shoppers with incomes above $100,000 are buying from its stores, attracted by less expensive products. Not only were Walmart’s prices lower than those of its competitors in its Nov. 14 grocery store survey, the gap between Walmart and its competitors is widening from the previous survey, according to a study by Goldman Sachs released Friday. According to Goldman Sachs, Walmart’s prices were 12.5% lower than the average prices of its competitors, based on a basket of 38 items across various categories. Six different product brands were interviewed to compile the report. Dollar General had the next lowest basket with an average price 6.4% lower than the group. The dollar store is among the retailers expected to benefit from declining holiday sales. Its shares are up 9% since the beginning of the year. Don’t get stuck in the middle “This holiday season, if I’m a retailer in the middle – in the middle between discount and luxury – I’m really worried that this could be the first real fight… that we’ve seen in a long time,” said Jake Dollarhide, General Director of Longbow Asset Management. It invites investors to position themselves in discount stores like Walmart or Family Dollar or luxury stocks like RH or Lululemon. Walmart is trying to play both ends of the market, Dollarhide said. He cited a partnership the company has with American Express, where Platinum cardholders can get a free Walmart+ membership that includes home delivery of groceries. “Walmart is not resting on its laurels,” he said. According to Kearney’s Thomas, Target’s positioning works against this. She explained that many shoppers perceive Target as a place where “you buy two items and come back $150 late.” This perception suggests that many shoppers find it hard to resist impulse buying at Target, and they can avoid it if they want to stick to their budget. The desire for good value for money will drive spending in the coming weeks, Thomas said. She cited fast fashion brands as an example of a company that could struggle, saying that retailers who sell premium products would be in a better position. According to her, cosmetics should also sell well. This will help companies like Sephora and Ulta, which release gift sets at different prices around the holidays. Lotis Blue Consulting CEO Garrett Sheridan said he’s seeing a bifurcation among consumers, with lower-income shoppers running short of cash amid widespread inflation. At the same time, “luxury items are becoming more popular,” he said. Sheridan said this means companies like Levi Strauss have seen products sell well in channels that cater to higher income consumers because the iconic denim brand offers value for money to shoppers. But in more price-sensitive channels, sales are under pressure, he said. In October, Levi lowered its forecast for fiscal 2022 as inventories increased, forcing it to cut prices. Its shares are down 37% this year. Sheridan’s main concern is that consumers may be overstretched this holiday season by using “buy now, pay later” services or incurring credit card debt. If this happens, he expects it to be reflected in spending in the new year. Indeed, the Federal Reserve said on Tuesday that household debt rose at its fastest rate in 15 years as credit card usage and mortgage balances surged in the third quarter. This is one of the signs of potential stress. But there are others. Jonathan Sharp, managing director of Alvarez & Marsal Consumer Retail Group, a global professional services firm, said consumer sentiment has worsened in a survey his firm conducted this fall. “Their inflation worries have intensified since the spring and their inflation expectations are possibly worse than financial market inflation expectations in the next six months,” Sharpe said. “…For retailers, these expectations…are becoming reality for retailers.” He said he was surprised at how much consumers have shifted to a “squatting spending mentality.” In a survey conducted by Sharp six months ago, consumers are still interested in spending money on entertainment such as travel, restaurants and events. But recent polls show that attitudes are changing and they are postponing spending. When Target released its results on Wednesday, it said it saw “drastic reductions” in spending at its stores in late October. It says that trends remained weak in November. This may be a reflection of the negative sentiment Sharpe picked up on in his research released this week. This also reflects the behavior of Dealnews.com’s Rumhold. Sharp said retailers will be successful if they give consumers reasons to shop. “They’ll have to do a lot more package deals, they’ll have to create a lot more hype about the deficit and ‘when it’s gone, it’s gone,'” he said. This may be why NRF is predicting a jump in the number of people shopping between Thanksgiving and Cyber Monday this year. Their estimate of 166.3 million buyers next weekend is up from last year and will be the biggest turnout since the group began tracking that data in 2017. . The company plans to cut total spending by $3 billion over the next three years, which could make it more efficient going forward. Sheridan of Lotis Blue, formerly known as Axiom Consulting Partners, said Target is not alone in its drive to optimize its business. He said retailers have anticipated these challenging conditions and are looking into their operations for places to cut costs. However, these types of operational improvements can take eight to 12 months to show their benefits, he said.
Credit: www.cnbc.com /