Holiday sales drive the bottom line for many retailers. It’s so obviously all-important that when retailers begin to give guidance that the holidays will be less than expected in the middle of November, people sit up and take notice as evidenced by the number of stories in the last couple of days.
Here’s a story from the Wall Street Journal:
Wal-Mart Stores Inc. offered little reason for holiday cheer, reporting its third straight quarter of poor sales in the U.S. and painting a gloomy picture for the economic recovery.
The downbeat outlook from the world’s largest retailer was a reminder that even as U.S. stock prices climb to record heights, many Americans remain caught between high joblessness and hits to their paychecks that are limiting their ability to spend, putting a further drag on an already sluggish economy.
Kohl’s Corp, a department-store chain that caters to middle-income customers, also reported weak results Thursday and said it scaled back its inventories ahead of the holidays, signaling a lack of confidence in its ability to boost sales.
The two chains’ results were emblematic of a barely growing retail environment in which companies are fighting a zero-sum battle for sales.
“No one is expecting the pie to grow rapidly, so the question is how do you get a bigger slice of it,” said economist Sung Won Sohn, who also serves on the board of teen retailer Forever 21 Inc. “We’re going to see an unprecedented degree of promotions this holiday season.”
Wal-Mart lowered its full-year profit forecast on Thursday and warned sales would be flat through the end of January, after sales fell for a third straight quarter at U.S. stores open at least a year. The weak demand bodes poorly for the coming holidays, when retailers can bring in a fifth or more of their annual sales and face the difference between a successful year and a soft one.
The New York Times had this piece about how some of the nation’s biggest retailers are disappointed in sales:
As the holiday shopping season accelerates with aggressive deals, Walmart, the nation’s largest retailer, joined other companies in painting a gloomy picture of consumer spending for the rest of the year.
While it posted a profit in its third-quarter earnings report and beat analysts’ expectations, the company trimmed its forecast — citing persistent unemployment within its customer base, jitters over the government’s health care plans and tight budgets all around.
“Their income is going down while food costs are not,” William S. Simon, chief executive of Walmart, said of the company’s customer base. “Gas and energy prices, while they’re abating, I think they’re still eating up a big piece of the customer’s budget.”
Kohl’s, another retailer that caters to budget-conscious shoppers, also reported its third-quarter earnings on Thursday, but it missed analyst expectations altogether.
“Let’s be clear: we’re disappointed in the third-quarter results,” said Kevin Mansell, Kohl’s chief executive.
But just one day earlier, Macy’s, which serves more of a middle- and higher-income market, looked far more comfortable. The company beat analyst expectations handily and posted strong gains on the stock market in its third-quarter earnings, which were announced Wednesday.
Ken Perkins, president of the research firm Retail Metrics, said Walmart’s core customers had been under sustained economic pressure, unable to increase their spending while more affluent consumers are willing to expand their budgets. “It does feel like a higher-end, lower-end kind of story,” he said. “The upper-income consumer is faring much better and will spend more.”
Bloomberg reported the important of same-store sales for retailers, especially during the holiday season:
Wal-Mart Stores Inc. (WMT), the world’s largest retailer, cut its annual profit forecast for the second time since August as the discount chain struggles to prevent economically challenged customers from taking their business to dollar stores and other rivals.
While the company’s low-income customers are among the hardest hit amid persistent unemployment and higher taxes, some of its troubles are self-inflicted. The discount chain has alienated some U.S. shoppers because it doesn’t have enough workers to keep shelves adequately stocked, leading some consumers to decamp to smaller-format stores that offer merchandise starting at $1. Sales at Wal-Mart U.S. stores open at least 12 months excluding fuel fell 0.3 percent in the quarter ended Oct. 25. Analysts predicted they’d be little changed.
“In retail, it comes down to same-store sales, and today was another disappointment,” Brian Yarbrough, an analyst at Edward Jones & Co. in St. Louis, said today in an interview. “On the fringe, they’ve got to be losing customers.”
MarketWatch wrote a piece about how sales on heavy shopping days won’t necessarily salvage the holiday season:
However, if history serves as any lesson, last year’s Thanksgiving rush and record Black Friday weekend sales didn’t salvage what shaped up to be a disappointing holiday season. Thanksgiving last year generated about $810 million in sales as the day took the bite out of Black Friday sales, which totaled $10 billion last year, Bill Martin of mall-traffic tracker ShopperTrak said in an interview.
“Retailers are trying to get a jump on the competition,” he told MarketWatch. “Thursday is simply selling the stuff at the expense of Black Friday.”
Black Friday, the day after Thanksgiving, is the No. 1 shopping day of the year for retailers based on sales and traffic. It is often profitable for retailers because shoppers tend to buy other things besides the deeply discounted doorbuster specials. However, Martin said retailers will have to consider whether it’s really worthwhile to continue to open stores on Thanksgiving because it’s not likely a profitable day for them when they factor in employee holiday time pay, he said.
Retailers also have to worry about how to get shoppers back in stores after the Black Friday weekend rush. Monday through Wednesday after the weekend are expected to be the season’s worst in terms of shopper visits, said ShopperTrak, which has 70,000 devices in malls and stores to track traffic.
While it might seem early to predict, the fact that many of the nation’s largest retailers are already setting low expectations about the holiday season doesn’t bode well for their performance. With consumer confidence on the fence and many people retrenching, retailers and other dependent on the holidays to boost their bottom lines for the year may be in trouble.
