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Will Retailers Fire on All Cylinders this Holiday Season?


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With the holiday season approaching, retailers are gearing up for the busiest part of the year and it goes without saying that competition will be tough, be at brick-and-mortar stores or online. Certainly, retail bellwethers will leave no stone unturned to make the most of this season and offer superior service to their patrons, this time too.

The holiday season is the period when retailers are well on their toes, flooding the markets with offers and promotions. They will sweep buyers off their feet with early-hour store openings, huge discounts, promotional strategies, and free shipping on online purchases. Since the season accounts for a sizeable chunk of yearly revenues and profits, retailers will grab every opportunity to drive footfall.

The Sector Holds Promise

Retailers are efficiently allocating a large chunk of their capital toward a multi-channel growth strategy focused on improving merchandise offerings, developing IT infrastructure to enhance the web and mobile experience of customers, renovating stores with a modern look, developing fulfillment centers to enable speedy delivery, implementing an enterprise-wide inventory management system as well as enhancing their relationship with existing and new customers.

Given the rebounding U.S. economy (GDP up 1.4% in second-quarter 2016), the retail space is brimming with optimism. A gradual recovery in the housing market, along with an improving labor market and still lower gasoline prices, are favoring the economy. These factors are also playing key roles in raising buyers’ confidence, which improved significantly in September, reaching its pinnacle since the recession. We expect this positive sentiment to propel consumer spending.

With the ability and willingness among consumers to spend more, retailers could hear their cash registers jingle this time. Data compiled by eMarketer suggests a 3.3% jump in holiday sales (November and December) to $884.5 billion. Retail eCommerce holiday season sales are anticipated to increase 17.2%, and would represent approximately 10.7% of total sales this season (or $94.71 billion).

Hiring on Track to Meet the Holiday Rush

Retailers such as Macy’s, Inc. (M - Analyst Report) , Target Corporation (TGT - Analyst Report) , hhgregg, Inc. (HGG - Analyst Report) and Kohl’s Corporation (KSS - Analyst Report) have announced their hiring plans for the upcoming holiday season as they expect higher store traffic based on renewed consumer confidence. According to Challenger, Gray & Christmas, an outplacement firm, U.S. retailers will employ about 738,800 seasonal workers for the holidays.

Per media reports, Target intends to employ 70,000 associates, while Kohl's will deploy over 69,000 workers nationwide, this holiday season. The recruiting plans of both retailers remain almost unchanged from last year. However, Target will hire another 7,500 people for its distribution center and fulfillment facilities. In an attempt to be prepared for the upcoming holiday season, Macy’s announced its plans to hire roughly 83,000 seasonal workers to handle the rush. With an aim to better serve customers during the busy holiday season, hhgregg also intends to employ roughly 500 associates.

Be Hawk-Eyed on the Extra Miles

Definitely, the economy is dealing with various micro and macro issues, including the upcoming Presidential election, uncertainty surrounding the Fed rate hike and other global events. However, retailers need to be hawk-eyed amid such a scenario. The holiday season is no less a battlefield for the retailers fighting hard to win over consumers. Companies will go the extra mile – offering discounts or indulging in promotional activities – to trap the bargain hunters. But we wonder whether these will come at the price of margins, not to say the impact on the bottom line.

We believe that with the advent of the holiday season, the retail sector will hog all the attention. So, how about betting your bucks on lucrative options? Out of the four stocks mentioned above, Macy's and hhgregg carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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