Big discounts equal high pressure for retailers

Shoppers walk past a sale sign as Black Friday sales begin at the Outlet Stores of the Bluegrass in Simpsonville, Kentucky, November 26, 2021.

Jon Cherry | Reuters

Major retailers are under intense pressure to deliver on Black Friday after several reported slowing sales heading into the do-or-die holiday shopping season.

Macy’s, Target, Kohl’s, Gap and Nordstrom He talked about the stagnation of sales in late October and early November. Target cut its forecast for the holiday quarter, and Kohl’s withdrew its forecast, citing sluggish sales. Macy’s CEO Jeff Gennette said shoppers continued to visit stores and its website during the lull, but searches did not translate into purchases. Best Buy CEO Corie Barry said buyers were more interested in the sale than ever before.

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These results show an emerging theme this season: Shoppers are waiting for the biggest and best deals — especially as inflation hits their wallets.

“People are willing to wait and be patient,” said Rob Garf, vice president and general manager of retail at Salesforce, a software company that tracks shopping trends. “The discount chicken game is back, and consumers will eventually win.”

A huge appetite for deals is fueling even higher expectations for the big Black Friday weekend. Many major retailers, including Walmart and Target, will be closed on Thanksgiving Day. A record 166.3 million people are expected to shop during the Thursday through Cyber ​​Monday weekend, according to an annual survey by the National Retail Federation and Prosper Insights & Analytics.

That’s about 8 million more people than a year ago and the highest count since the NRF began tracking the data in 2017.

Consumers are choosing more about how they spend

Retailers and industry watchers expected a quieter holiday season with sales driven by higher prices rather than a strong appetite for merchandise. The National Retail Federation predicts sales growth of 6% to 8%, including near-record inflation.

As concerns about Covid-19 ease, travel and experiences are competing fiercely for Americans’ wallets.

Retail executives reporting earnings spoke of a return to pre-pandemic gift-buying patterns. In the past two years, consumers have shopped earlier and spread out gift buying due to growth in online sales and worries about shipping delays and out-of-stocks due to congested ports.

This year, retailers started their resale early, but focused on selling off excess inventory and serving a more value-oriented consumer. Amazon had a second Prime Day sale in October, and Target and Walmart had competing sales at the same time.

Strategic shopping

Buyers are not in a hurry to buy yet.

Best Buy CEO Barry said the company’s October sales were the slowest in the quarter compared to last year. He said the backdrop is very different from a year ago, when shoppers bought early and worried they wouldn’t be able to get all the items on their wish list.

“That push to buy is not there this year,” he said. “Your average consumer knows there’s a lot of inventory and it’s going to be competitively priced.”

Best Buy now expects customers to spend more on Black Friday, Cyber ​​Monday and the two weeks before Christmas, he said. According to him, the company extended working hours, prepared stores and even set a time for this schedule.

Not only do you have dollars moving toward travel and entertainment, but you also have dollars moving toward your needs.

Chris Horvers

JPMorgan analyst

Other factors may also reduce demand in late October and November. In recent earnings calls, executives from Gap and Nordstrom cited unseasonably warm weather in the fall, which has encouraged consumers to avoid running to the stores to buy winter coats or heavy sweaters.

Moreover, some Americans were tuning into the midterm elections — highly competitive races that have their attention and can also contribute to economic uncertainty, said Chris Horvers, an equity research analyst who covers retail for JPMorgan.

But he added that the weaker start to the holidays had also raised some alarm bells about consumer health. Retailers were cautious in sharing their hopes for the season, pointing to consumers dipping into savings accounts and building up credit card balances despite stronger-than-feared results for the third quarter.

“Not only do you have dollars moving toward travel and entertainment,” Horvers said, “you also have dollars moving toward your needs.”

Plus, he said it’s not all good news that people are showing up for the Black Friday weekend.

“If a consumer responds to promotions and opens stores this week, but stops spending shortly thereafter, it will reinforce retailers’ concerns that the consumer is only buying what they need and will only shop when there’s a discount.”

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