Do department store shoppers start late on Christmas Day or take a pass?

November 21, 2022

Described as a “nightmare before Christmas” by The Wall Street Journal, Macy’s and Kohl’s experienced an unexpected slowdown in sales in October and early November, leaving questions about whether holiday gifts are being delayed or reduced in a hyperinflationary period.

“When we think back to the last year, the consumer has been flushed with cash and there has been an increase in demand on well-documented inventory constraints,” Macy’s CEO Jeff Gennette said on a quarterly call Last week. “This year, [the] consumer hears of a glut of inventory. They are on a tighter budget, feel the impact of inflation on non-discretionary items, and begin to deplete their savings. With that in mind, we think they’re waiting closer to the holidays to shop.

Macy’s sales picked up last week as cold weather boosted demand. Macy’s wide fourth quarter forecast calls for flat sales at a 22% year-over-year decline.

The flat forecast assumes sales patterns revert to 2019 patterns when holiday shopping was lagging. The darker side of the outlook assumes that October and early November trends continue, “consumer pressure persists and the promotional competitive landscape intensifies throughout the holidays and into January,” Mr. Gennette.

Kohls also attributed recent weak sales to a later start to the holiday. Management withdrew its guidance due to volatile sales and the transition of its CEO. Kohl’s President Peter Boneparth told analysts“Visibility for the fourth quarter was as difficult as any period I can remember.”

The cloudy holiday outlook came a day after Target also blamed late holiday shopping for weaker sales. The retail sector is sitting on already high inventories, particularly in categories such as apparel, as supply chain bottlenecks have eased. Late holiday shopping may force stores to mark up earlier than expected.

Katrina O’Connell, Executive Vice President and Chief Financial Officer of Gap, said last week, “We know we need to get ahead of the game to make sure we’re in early enough, that we’re promoting at a time when she’s ready to buy, and that we’re not waiting too late to clear the merchandise. And on the other hand, if they don’t shop until later, we don’t want to be too far ahead.

DISCUSSION QUESTIONS: How worrisome should the late holiday shopping trend be for department stores? What advice would you have regarding markdown strategies, given uncertain demand?

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“How worrisome should the late holiday shopping trend be for department stores?”

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