America’s annual ‘Black Friday’ shopping festival starting next Friday – the day after Thanksgiving – will be a major test for US retailers.
The Christmas sales season is in fact shaping up to be the most puzzling for years as a mix of rising inflation, stock overhangs, higher interest rates test the resilience of shoppers in a way they haven’t been tested for decades.
Retail sales momentum is solid – as we saw in this week’s October report – but the performance of key chains is a mix of good and bad as we saw from the quarterly reports from Walmart and Macy’s (good) and Target and Kohl’s (bad).
Inflation while still a problem, is starting to ease; supply chain problems have largely been overcome, but many retailers are stuck with tens of billions of dollars of unsold stock at a time of rising interest costs which in turn will put enormous pressure on profit margins in the run up to Christmas as retailer large and small are pressured to clear the decks.
And the 2022 selling season won’t see bricks and mortar retailers elbowed aside by more aggressive online operations like Amazon.
The likes of Amazon are no longer the ogre, just another competitor – and, judging how its share price has collapsed this year, not a very successful one at that.
Amazon usually has one Prime Day early (a gigantic online sale) a year. In 2022 it has had two to try and kick start sales growth – one in July and one in October, as well as its Cyber Monday sale on November 28. That, however, is now being pushed over a longer period.
While the likes of Amazon, Target and Kohl’s have struggled, retail sales generally have been more than OK.
This week saw US retail sales rise much more strongly than expected in October – on all major measures as US consumers spent heavily, with the exclusion of some discretionary sectors.
And yet the spoils of that surge were not distributed evenly and we saw two very conflicting outcomes from America’s number 1 and Number 2 retailers, Walmart and Target.
Walmart did much better than expected in its third quarter, which includes October while Target did much worse – in fact it is struggling and the shares slumped more than sharply this week while those of Walmart rose.
And it was a similar story in the US department store sector where Macy’s – the biggest chain – reported better-than-expected sales and profits and solid outlook, while rival Kohl’s failed to make the mark and did poorly.
Walmart reported a 9% lift in sales for the quarter, cut its overhang of stocks, saw customers respond favourably to aggressive pricing and raised its forecast for the final quarter and year. Comparable store sales rose 8.2% – about inflation for the same period.
In stark contrast Target slashed its 4th quarter forecast as net income fell by 50% from the same quarter in 2021 with the fall driven by losses taken on getting rid of excess stocks. Target also revealed plans to cut $US3 billion in costs over the next two years – Walmart didn’t.
And yet the retail sales data supports the better-than-expected performance by Walmart and not Target which looks more and more like poor execution by management.
The US Commerce Department said retail sales rose by 1.3% in October, much faster than the 1% increase forecast by the market and a sharper rise compared to September’s flat result.
Analysts said it was surprising US consumers were not spooked by more rate rises from the Fed, stubbornly high inflation and the lead-up to the rancorous midterm elections earlier this month
Excluding a 1.3% increase in motor vehicle sales, retail sales were still up 1.3% in the month – again much faster than an expected 0.5% increase.
That followed September’s 0.1% rise. It was also the biggest monthly increase since February – i.e. before the Russian invasion of Ukraine set off an inflationary surge across the world.
Ignoring both motor vehicles and the 4.1% jump in gasoline station sales in the month because of high prices, retail sales were up 0.9% in October after a 0.6% gain in September.
Notably the rise was driven by a 1.6% gain in sales at restaurants and bars and a 1.4% sales increase at grocery stores.
There were also notable sales gains for furniture, building materials, and at non-store retailers.
But consumers pulled back on spending at electronics and appliance stores, sports goods retailers and department stores, according to the Commerce Department report.
In the department store sector, the quarterlies from Macy’s and Kohl’s showed a similar split to that between Walmart and Target.
Macy’s raised its annual profit forecast thanks to continuing strong demand from shoppers for its mix of high-end clothes and beauty products, while the inflation squeeze on lower-income shoppers forced rival Kohl’s Corp to scrap its forecast.
Luxury goods sales (which are discretionary goods) have held up for Macy’s as affluent shoppers returned after the pandemic to splurge on pricier handbags, perfumes, clothing and gifts heading into the holiday season.
But Kohl’s withdrew its annual forecasts, as the company, which caters more to lower-income customers and stocks fewer luxury goods, was hit by weakening demand due to rising prices.
Inventories at Macy’s were up just 4% in the third quarter from a year ago, thanks to its continual and heavy discounting to clear excess stocks of casual and leisure apparel. Kohl’s inventories jumped 34%. Kohl’s lost its CEO as a result on Thursday.
Kohl’s third-quarter comparable sales fell 6.9% but net profit fell to just $US97 million in the quarter from $US243 million a year earlier.
Macy’s reported net income of $US108 million for the quarter to October 29, down from $US239 million but better than forecast. Sales slipped 3.9% to $US5.23 billion from $US5.44 billion in the year-ago period, but that also beat expectations.
Comparable sales — those from established stores and from online — dipped 2.7% compared with the year ago quarter, but it was up 6% compared with the third quarter of 2019, before the pandemic.
We’ll know this time next January just how the post-Thanksgiving period went and then in February how the various chains performed. it is very likely that the expected surge in deeply-discounted sales (to get rid of unwanted product) will depress sales figures for both November (in late December) and December (in late January).
