Sharp discounting of retailer merchandise already has begun, more than a week from Black Friday. Walmart is offering discounts on Apple’s iPhone and smartwatch. Several retailers have cut TV prices by more than 20%. Even mattress prices have been slashed at several outlets. While the discounts may draw shoppers, they also compress the margins of some of America’s largest retailers.
Some retailers have projected terrible results for the final two months of the year, although probably none will hurt as much as that of Sears and Kmart. J.C. Penney, which announced its same-store sales may be down as much as 8% for the year, is fundamentally in a flat spin. Kohl’s released brutally poor earnings. Figures for storied retailer Macy’s are unlikely to be much better.
On the other hand, if the retail industry needed a signal that the holiday season will be robust, it had Walmart Inc.’s (NYSE: WMT) earnings. Two-year comparable store sales rose 6.6%. E-commerce sales were up 41% from the same quarter a year ago. Overall global revenue was up 3.3% to $128 billion. Forecast results for the holiday quarter were strong. Much of the industry appears to be as fortunate.
One positive sign is that, with 35 shopping days until Christmas, large retailers have added hundreds of thousands of temporary workers. Also, industry experts have forecast the best holiday sales since the Great Recession, and China trade tensions have not blunted consumer confidence. The National Retail Federations believes this may be the best holiday season in years.
Results for retailers that started to offer huge discounts on items before the Thanksgiving weekend, which includes Black Friday, a day that is considered the most important of the year, are taking calculated risks. Some experts who follow the holiday economy are worried about these discounts. However, the price cuts are traditional and usually mean a retailer has stocked up on items for which it paid unusually low prices, or it wants to offer loss leaders to bring in shoppers who will buy other, more profitable things.
Not to be bested by its brick-and-mortar rivals, Amazon.com Inc. (NASDAQ: AMZN) has released a huge number of discounted items. For the time being, its focus is primarily on toys, clothing and consumer electronics. Amazon may dig itself a new earnings hole because of its aggressive free shipping. Last quarter, new, particularly aggressive shipping deals hurt its numbers. Free shipping deals as a competitive advantage grow by the year, as companies like Walmart offer deals that match Amazon’s. Observers believe that free shipping is another way to pound rivals into the ground, even if short-term financial results are hurt. Amazon can easily afford what is often a money-losing practice.
Another trend that may bode well for the season is that retailers and airfreight companies like FedEx and UPS have hired armies of temporary workers. This lends at least a temporary bump to the economy and is a sign of optimism. These hundreds of thousands of jobs lift national employment numbers. These people also will have more money to do shopping of their own.
Economists have said that consumers should have started to feel the effects of tariffs by now. In pockets, like the farming sector, they have. However, most measures of consumer confidence continue to be strong. That is probably due to unemployment that is at a five-decade low and to unusually low interest rates, which can help consumers borrow for the purchase of holiday gifts.
The strongest holiday season forecasts have been dominated by tailwinds and forecasts of tailwinds ahead. With only 35 shopping days until Christmas, many shoppers and some retailers appear to be in very good shape.