Retailers brace for slow holiday quarter
Retail bellwethers Target and Walmart are projecting a weaker-than-expected holiday season marked by squeezed profits due to higher promotions and discounts.
Why it matters: The forecasts from the big-box retailers indicate that retailers may be bracing for something harsher than a cold winter — a slow holiday quarter — as consumers adjust their behavior to adapt to rising prices stemming from inflation.
Driving the news: Target is projecting comparable sales to decline by the low-single digit in the fourth quarter. Its shares tumbled Wednesday morning.
- It has already observed softening sales and profits late into the third quarter and continuing into November, the retailer says.
- Walmart expects U.S. comparable sales to rise about 3%, excluding fuel, during the holiday quarter, coming in below Wall Street’s expectations.
What they’re saying: “The rapidly evolving consumer environment means we're planning the balance of the year more conservatively,” Target says.
- The company plans to cut costs by around $2 billion to $3 billion over the next three years.
The big picture: Consumers are feeling constrained by higher prices for everything from groceries to gas to basic necessities and they are making trade-offs on what they need versus what they want.
- U.S. consumer prices, a measure of inflation, rose less than expected in October, but inflation remains near a four-decade high.
- “Consumers are showing increasing signs of stress and pulling back from discretionary purchases,” Target CEO Brian Cornell said on the earnings call.
Zoom in: Consumers are shirking full-priced items in favor of discounts or the retailer’s own brands, which are less expensive, Target and Walmart say.
- They’re also buying smaller items or value packs to save.
The bottom line: Both retailers expect to continue promotional activity as they pare down excess inventory and try to win consumers.
- “This will be one of those years where we're watching sales closely up until the last minute of Christmas Eve,” Walmart CEO Doug McMillon says.
- Holiday shopping may extend beyond December, he added, as consumers hold off spending until they find the right (lower price) deal.