Holiday shopping season separates winning retailers from losers

Shoppers are heading into the Black Friday weekend unsure how wide to open their wallets, retailers say, with many still feeling the squeeze of inflation and also worried that tariffs could make things even more expensive if they wait too long to buy.

Black Friday marks the unofficial start of the holiday shopping season, a make-or-break period for many retailers. Recent data suggests that consumer spending, the engine of the U.S. economy, remains relatively robust.

But reports from retailers hint at diverging fortunes, as shoppers have grown pickier about what they buy and where they buy it. An executive at Target described consumers as shifting from “resilient” to “resourceful.” A leader at Walmart said shoppers “seek value to maximize their budgets.”

These spending patterns are creating winners and losers in corporate America, perhaps most starkly illustrated by Walmart and Target.

Last week, Walmart beat analysts’ estimates for sales and raised its forecast for the full year for the second time in three months. Its share price jumped higher, setting fresh records.

A day later, Target — which features more discretionary categories like apparel and home décor — badly missed sales expectations, cut its forecast and saw the steepest drop in its stock for years.

The picture that is forming shows sellers that are focused on discretionary or big-ticket purchases are coming under pressure as shoppers, including more affluent ones, spend more judiciously at places that offer deals and lower-cost items.

The National Retail Federation projected U.S. holiday sales to grow as much as 3.5% this year, slower than in recent years but in line with averages before the pandemic.

Walmart, the nation’s largest retailer, is emerging as one of the winners before the holiday season. The company reported that its U.S. sales had increased 5% in its most recent quarter, comfortably surpassing Wall Street estimates. Higher-income households accounted for most of the retailer’s market share gains, the company said.

Amazon’s e-commerce business in North America grew 9% in its most recent quarter, even as consumers shifted their spending to lower-cost products, contributing to a record-breaking quarter for the company.

The tech giant is positioning itself to keep winning over shoppers looking for deals. This month, it unveiled Amazon Haul, a feature in its mobile app that replicates the shopping experience at rivals such as Temu, with a kaleidoscope of low-priced items: Christmas tree-themed iPhone cases are $2.99, and a four-pack of plastic headbands goes for $3.99.

TJX, the owner of T.J. Maxx and Marshalls, also beat analysts’ estimates for its most recent quarter and raised its full-year forecast. The rise in sales was driven by more customer visits, rather than shoppers’ spending more per visit, which John Joseph Klinger, TJX’s chief financial officer, told analysts was “a great indicator of the strength of our value proposition.” Strong results from Ross, a discount clothing retailer, reinforced the picture.

Richard Dickson, the chief executive of Gap, said the chain was seeing “strong responses to our value proposition from higher-end consumers.” Costco and BJ’s both announced increases in their membership fees for the first time in years, a sign of confidence after reporting better-than-expected earnings.

Then there is Target. Sales at its stores last quarter fell 1.9% from a year earlier, and the company cut its full-year profit forecast. Its shares tumbled more than 20% on the day it reported the results.

Brian Cornell, Target’s chief executive, told investors that shoppers were “waiting to buy until last moment of need, focusing on deals and then stocking up when they find them.”

Michael Baker, managing director at D.A. Davidson, a brokerage, wrote in a note to clients that Target’s difficulty navigating the changing economic conditions was “a function of a product positioning that is better suited to a more bullish spending environment.”

Some big department chains with lots of middle-income customers have also missed the mark, losing ground to discounters and online sellers, among others, and disappointing investors with weak sales, murky outlooks and other issues.

Macy’s, which is in the midst of a turnaround that includes closing 150 of its stores over the next three years, reported mixed results this week. They were overshadowed, however, by an accounting issue that forced the company to delay its full earnings report. Macy’s discovered that an employee had misstated and hidden up to $154 million in delivery expenses over the past few years.

Kohl’s, which announced a new chief executive this week, reported a 9% drop in third-quarter sales. Its shares promptly plunged to their lowest level since 2020, and the retailer warned of a “highly competitive holiday season,” slashing its forecast for the rest of the year.

Also struggling this season are home furnishings and home improvement retailers, like Lowe’s and Home Depot, as interest rates, which remain relatively high, depress demand for big-ticket items that require financing.

Consumers “continue to face affordability challenges as both inflation and interest rates are putting pressures on their wallet,” Marvin Ellison, the chief executive of Lowe’s, told investors. Appliances and flooring are among the purchases that many people have put off, executives said.

Still, “you have to distinguish between a company that’s struggling and an industry that’s struggling,” said Nikki Baird, vice president of strategy at Aptos, a technology company that works with retailers. “I think this is going to be a better holiday season than people expected, but it’s not evenly applied.”

Some higher-end retailers appear to be doing well, like Williams-Sonoma, the kitchen supply and home furnishings chain, which tends to cater to more affluent households. Laura J. Alber, the company’s chief executive, told investors after a better-than-expected earnings report that “it’s really hard to know exactly what’s going on with the consumer,” but that shoppers were “probably a little bit better off than everybody thinks.”

Other factors could lift spending in the crucial final weeks of the year. Americans might be “taking a big sigh of relief” after the presidential election lacked a contested result or the violence that some feared, said Joe Feldman, a retail analyst at Telsey Advisory Group.

“The consumer has kind of moved forward, like, ‘All right, it’s time to have a good holiday season,’” Feldman said.

Also the sweeping tariffs pledged by President-elect Donald Trump could encourage spending on higher-cost items, before the levies raise prices further. That could help the consumer electronics sector, which has seen mixed results as shoppers have cut back on discretionary spending, Baird said. Best Buy recently cut its full-year sales forecast, pointing to “softer-than-expected sales” in the past few months.

If retail sales prove strong for the rest of the year, “it’s going to be a question of how much is this a shift in consumer behavior because they’re expecting tariffs,” Baird added, versus a sign of underlying economic strength.

This article originally appeared in The New York Times.

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