Big discounts equal high pressure for retailers

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

Jon Cherry | Reuters

Major retailers are under heavy pressure to deliver on Black Friday after many of them signaled slower sales ahead of the do-or-die holiday shopping season.

Macy’s, Objective, by Kohl, I split And Nordstrom spoke of a lull in sales in late October and early November. Target trimmed its outlook for the holiday quarter and Kohl’s withdrew its forecast, citing sluggish sales. Macy’s CEO Jeff Gennette said shoppers continued to visit his stores and website during that hiatus, but browsing didn’t turn into buying. Best buy CEO Corie Barry said buyers are showing more interest in sales than usual.

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These findings illustrate an emerging theme this season: Buyers are looking for the biggest and best deals, especially when inflation hits their wallets.

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

That big appetite for business is stoking higher expectations for a bigger Black Friday weekend. Many major retailers, including Walmart and Target, will be closed on Thanksgiving. However, according to an annual survey by the National Retail Federation and Prosper Insights & Analytics, a record number of people – 166.3 million – are expected to shop over the weekend, which runs from Thursday to Cyber ​​Monday.

That’s up by nearly 8 million people from a year ago and the highest estimate since the NRF began tracking the data in 2017.

Consumers are more selective about how they spend

Retailers and industry watchers have anticipated a quieter holiday season with sales driven more by higher prices than a huge appetite for the goods. The National Retail Federation expects sales to rise between 6% and 8%, including the increase due to near-record levels of inflation.

Travel and experiences are also competing more fiercely for Americans’ wallets as worries about Covid-19 fade.

Retail executives reporting gains spoke of a return to the pre-pandemic style of gift buying. In the past two years, consumers have shopped earlier and spruced up gift purchases due to concerns about shipping delays and out-of-stocks caused by a spike in online sales and congested ports.

This year, retailers once again started sales early but pivoted them toward selling overstock and catering to a more value-oriented consumer. Amazon launched a second Prime Day-like sale in October, and Target and Walmart had competing sales during the same period.

Strategic purchases

Yet, so far, buyers have been in no hurry to buy.

Barry, CEO of Best Buy, said the company’s October sales were the slowest of the quarter compared to last year. He said the backdrop is very different from a year ago, when shoppers bought early and feared they couldn’t get every item on their wish list.

“This buying momentum just isn’t there this year,” he said. “Your average consumer knows there is a lot of inventory and it will be competitively priced.”

He said Best Buy now expects customers to spend more on Black Friday, Cyber ​​Monday and the two weeks leading up to Christmas. The company has extended hours, staffed stores and even inventory scheduled for that schedule, she said.

Not only do you have dollars moving in travel and entertainment, but dollars moving in needs as well.

Chris Hovers

JPMorgan analyst

Other factors may have also held back demand in late October and November. In recent earnings calls, Gap and Nordstrom executives alluded to unseasonably warm weather in the fall, which may have inspired consumers to hold back from running to the stores to purchase winter coats or chunky sweaters.

Also, some Americans were tuning into the midterm elections — highly contested races that grabbed their attention and may have contributed to the economic uncertainty as well, said Chris Horvers, an equity research analyst who covers retail for JPMorgan .

But, he added, a weaker start to the holidays has also set off some consumer health alarms. Retailers were cautious about sharing hopes for the season and alluded to consumers tapping into savings accounts and building up credit card balances, despite delivering stronger-than-expected third-quarter results.

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

Plus, she said, it’s not all good news if people show up for the Black Friday weekend.

“If the consumer responds to promotions this week and makes purchases but then stops spending shortly thereafter, it will reinforce this concern retailers already have that the consumer will only shop when they need to and will only shop when there’s a discount.”

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