Retail Industry

Upcoming Holiday Shopping Season

With a probable end in sight to a prolonged recession, American consumers are somewhat upbeat about the upcoming holiday shopping season. However, customers remain skeptical at the same time and intend to spend less, compared to previous years before the start of the recession.

According to a study by A.C. Nielsen, approximately 42% of American consumers plan to spend less this holiday shopping season, representing a 7% year-over-year rise in those who intend to spend less.

U.S. customers have undergone a fundamental change in how they spend their money. They are primarily focusing on value-for-money items throughout the holiday shopping season, especially traditional and essential gifts that are popular. As a result, traditional items such as toys, electronic goods and clothing are at the top of holiday shopping lists, and most consumers
intend to spend more on gift cards.

Consequently, it will be more of a challenge for the retail business to attract customers to their outlets and online stores. In view of lower discretionary income, consumers are currently more selective in their purchases. Trends are also showing a progressive shift in consumer research patterns before holiday shopping, and it is observed that more value shoppers are browsing and comparing the products on the Internet. Consumers are also resorting to social media to search for holiday shopping deals and coupons.

Therefore, online retailers that offer value in the retail business, including discount stores and savings clubs, will be more attractive to shoppers as they provide budget holiday shopping gifts, as well as flexible delivery options, shipping deals and gift-wrapping/eco-packaging services.

Most retail business also looks to be pushing up sales before ‘Black Friday,’ the day after the Thanksgiving Day holiday that marks the traditional kick-off of the holiday shopping season. Market research firm IBISWorld expects total retail business sales over Black Friday weekend to rise 2.8 % to $42.9 billion. It expects 76.9 million people to swarm into retail stores on Black Friday alone.

Retail business like The Gap (GPS - Analyst Report) started offering discounts of 25%, while Wal-Mart and Target are offering online shoppers free or discounted shipping on most of the items. JC Penney (JCP - Analyst Report) is also ramping up its Black Friday promotions.

OPPORTUNITIES

Most of the companies in the apparel, confectionery and cosmetics sector are expected to benefit from the holiday shopping season.

Leading apparel company Gap Inc. (GPS - Analyst Report) recently reported strong quarterly earnings, boosted by sales at its low-price Old Navy chain. Gap is now focusing more on improving its business model by striking the right balance between its cost structure and merchandise by better aligning inventory with sales trends. The company is upbeat about its performance in the upcoming holiday shopping season, as management is focused on gaining market share by presenting a strong value proposition to customers across its brands.

The other leading retail business, Limited Brands (LTD - Analyst Report) reported almost a 50% year-over-year increase in earnings during the fiscal 2009 third quarter. The company is confident about its strong performance during the holiday shopping season and has lined up holiday themes focused on offering core products and seasonal gifts.

The Hershey Company (HSY - Analyst Report) also posted strong profits during the recently reported quarter. The company is making the required consumer investments for the upcoming holiday shopping season.

WEAKNESSES

There are certain companies that are still facing the brunt of the recession and reporting losses in the retail business.

Home Depot (HD - Analyst Report) witnessed severe stress from declining retail business market fundamentals during the quarter, with challenging macroeconomic environment and weakness in the U.S. housing sector. Total sales decreased 8.0% year-over-year to $16.4 billion, while overall same-store sales decreased 6.9%.

Similarly, Abercrombie & Fitch Co. (ANF - Analyst Report) reported relatively weak third quarter 2009 results with a net income of $38.8 million or 44 cents per share compared to a net income of $63.9 million or 72 cents per share in the year-earlier quarter. The year-over-year decline in results was primarily due to the continued economic downturn plaguing the retail business industry that has resulted in reduced consumer discretionary income and a cut in non-essential spending.

Sears Holdings (SHLD - Analyst Report) reported total revenues of $10.2 billion during fiscal 2009 third quarter compared to $10.7 billion in the year-earlier quarter. The decrease in year-over-year retail business sales was primarily due to a decline in comparable store sales partially offset by the effect of foreign currency translation. Domestic comparable store sales decreased 2.3% during the quarter, with the Sears Domestic division accounting for a 4.6% decrease partially offset by a 0.5% increase in the Kmart division.

The Sears Domestic division was negatively affected by the decline in the housing industry coupled with a decrease in home electronics products. Although Sears managed to reduce its quarterly loss year-over-year, it reported a second consecutive quarterly loss for its retail business during the fiscal 2009 third quarter.

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