It’s not yet Halloween, but stores are already focused on Christmas.
Holiday shopping is set to be strong, despite the Covid crisis. Retail sales are projected to climb between 1% and 1.5% for the holiday season, and online sales potentially increase by 35%, and retailers have already kicked off their holiday sales, thanks to
(AMZN) Prime Day and corresponding sales at peers like
But not all stores have responded in kind. MKM analyst Roxanne Meyer writes that she assumed apparel retailers would follow suit, with their own answers to Amazon.com’s Prime Day, but “Christmas hasn’t kicked into high gear as we might have expected…yet.”
She notes that while
(GPS) did have some increased promotions this past weekend, other mall staples like
(LB) actually appeared to have fewer sales from the year-ago period.
That could turn out to be a missed opportunity: “With two weekends remaining in the [fiscal] third quarter, any pull-forward of holiday sales would be gravy…and a safeguard against shipping delays as it gets closer to Christmas.” Indeed, Meyer notes that delayed shipping risks—which Barron’s highlighted last month—are a key overhang for the sector.
Cos. (TJX), which gets less than 3% of its business from e-commerce, has already been dealing with shipping delays, which “doesn’t bode well for holiday generally,” she warns. “We would expect retailers with scaled e-commerce businesses to fare better, but are not immune.”
Barron’s noted that early ordering is the best way to avoid delivery disappointment; click-and-collect services could help last-minute shoppers, although Meyer writes that that will place “outsize pressure on stores in the final stretch.”
While economic uncertainty and high unemployment seem like potential headwinds as well, consumer confidence has been recovering from pandemic lows. DataTrek Research co-founder Nicholas Colas writes that, along with compelling merchandise and fewer alternatives (like travel and dining) for consumers to spend money on, this year “is actually a decent setup for publicly held retailers,” and would only improve if lawmakers pass another round of stimulus.
That said, he notes that there’s “quite a bit of a ‘survival of the fittest’ contest in retail just now,” with so many retailers shrinking or disappearing, and “larger chains stand to pick up a lot of market share during Holiday 2020.” (Barron’s has noted this phenomenon before as well.) The ability to gobble up market share from weaker players, along with the potential for more government aid, has made retail stocks “strangely compelling,” Colas writes.
Ultimately, investors should be cautiously optimistic about the upcoming holiday shopping season, given the competing catalysts. Pent-up demand, higher savings, the potential for more stimulus, more online options, and fewer alternatives to shopping are all working in retailers’ favor, but rising Covid-19 cases, persistently high unemployment, ongoing economic uncertainty, and supply chain issues could be mitigating factors.
Just remember: Even a strong holiday shopping season may have an outsize benefit only to some of the biggest players.
Write to Teresa Rivas at [email protected]