After last year’s challenging holiday season, marked by high inflation and consumer focus on essentials, Wall Street is cautiously optimistic as recent economic data suggests food disinflation and higher wages. However, concerns loom over rising credit card debt, diminished pandemic savings, and increased interest rates, prompting investors to anticipate potential merchandise oversupply and subsequent discounts from major retailers like Walmart and Target.
Walmart’s decision not to hire seasonal holiday workers is seen as an indicator of cautious expectations for shopper traffic, according to Sizemore Capital Management. Charles Sizemore, the firm’s CIO, interprets this move as a signal that Walmart does not anticipate a significant surge in holiday shopping.
Further evidence of potential challenges emerged when Target’s CEO mentioned customers pulling back, even on groceries, raising concerns about muted Christmas spending. The National Retail Federation predicts the slowest growth in U.S. holiday sales in five years, with the season traditionally kicking off on Black Friday. Despite the outlook, both Walmart and Target began offering holiday discounts in October.
Walmart, focusing on grocery sales, is expected to report a 4.4% rise in third-quarter sales, emphasizing lower prices for Thanksgiving meals and ingredients compared to the previous year. Target, with a more diverse product range, may face a 4.8% sales drop, given its reliance on clothing, home goods, toys, and electronics.
Companies like Newell Brands and Helen of Troy, selling products at both Walmart and Target, noted that inflation is driving consumer focus toward food and essentials, prompting retailers to manage inventories more tightly. Target, however, remains optimistic, citing increased spending for holidays like July 4th and Memorial Day, expecting a similar pattern for Black Friday and the days leading up to Christmas. While Walmart invests in store remodeling, Target relies on new merchandise and collaborations with brands like Ulta Beauty and Kendra Scott.
D.A. Davidson analyst Michael Baker suggests that food price inflation might not hinder sales of discretionary goods as much as it did last holiday season. The holiday shopping season unfolds against a backdrop of economic uncertainties, leaving retailers to navigate the delicate balance between consumer spending habits and external economic pressures.
