2011 Holiday Shopping: Retailers Ready For War (XRT, FDX, AMZN, COH, TIF, COST, PJC)
Kerri Shannon: Now that we’re in November, prepare to see retailers gear up for what will be a particularly brutal holiday shopping season. High unemployment and tight credit will limit the amount of consumer spending dollars available to retailers (NYSE:XRT).
The annual holiday shopping survey by consultant Accenture PLC (NYSE:ACN) reported 88% of shoppers plan to spend the same or less than last holiday season, discouraged from the lack of economic recovery. About 72% of consumers described their holiday shopping as “careful” or “controlled.”
“As we approach the 2011 winter holidays – the fourth straight season set against a backdrop of economic uncertainty – Americans remain fixated on finances: their own and that of the nation,” wrote Tod Marks, Consumer Reports senior editor and shopping expert. “So it’s not surprising that people are even more intent on watching their dollars, shopping on a set budget and, of course, bargain-hunting.”
Still, the National Retail Federation estimates this holiday season will see a 2.8% gain in sales in November and December, totaling $465.6 billion – a tiny bump for a sector that waits all year to profit from the holidays.
That means a few companies will manage to emerge from the melee in much better shape than their rivals. Those companies are already preparing for battle.
Retailers Fight for Shoppers
The fight to win shoppers amid modest spending expectations means consumers will be able to enjoy incredibly competitive promotional tactics.
“Knowing their customers are more focused than ever on value, retailers will entice shoppers with promotions that go beyond discounts, whether they’re promoting free gifts with purchase, an extended warranty, or stellar customer service,” said NRF President and CEO Matthew Shay.
Winning customers won’t be easy. The increasingly budget-conscious shoppers have created a new type of consumer this holiday season: “precision” or “surgical” shoppers. These types of buyers go to the store with a mission and exit quickly. They aren’t easily distracted by in-store sale items or flashy attention-grabbing gimmicks.
“They will be very targeted about where and what they buy, and will be more inclined to shop around for the best value,” said Janet Hoffman, managing director of Accenture’s retail practice. “Stores should focus on providing an experience and services that create a sense of extra value in mind for the shopper.”
This type of focused buying, paired with the growing popularity of Internet shopping, will hurt retailers who typically benefit from impulse buys. Selling items to people once they got in the door, with alluring deals or tempting products by the cash register, used to give a hearty boost to profits. But the rise of web-savvy consumers means people spend less time in stores, and usually come in only to buy a product they’ve already researched online.
Meanwhile, online retailers continue benefiting from this new shopping behavior – and are investing in their businesses as a result.
About 68% of retailers expect their online sales to increase by at least 15% this year from last. To attract more customers, about 92.5% plan to offer free shipping during the holiday shopping season. More than 19% have developed special shopping-assistance apps and 51% have invested in mobile-optimized Web sites.
Who’s Winning This Holiday Shopping Season
The increasing popularity of online shopping means No. 1 Internet retailer Amazon.com Inc. (NASDAQ:AMZN) will clean up again on holiday sales. Amazon stock fell 13% Oct. 26 after it reported a 73% drop in third-quarter earnings, but many analysts remain bullish on its outlook. The average 12-month price target is $260, a 22% premium to Monday’s closing price of $213.51.
Discounters will also come out on top this season – good news for stores like Costco Wholesale Corp. (NASDAQ:COST). Shoppers will flock to Costco for home decorations, clothing and jewelry. Piper Jaffray Cos. (NYSE:PJC) just reiterated its “Overweight” rating on the stock, with a $90 price target, 8% higher than Monday’s $83.25 closing price.
Some high-end retailers also will benefit from wealthy shoppers who are more resilient than other consumer groups, and who have been waiting all year to splurge on holiday shopping deals.
“Even if retail does slow, we still think the high-end will outperform middle- and lower-income retailers,” Edward Yruma, an analyst at KeyBanc Capital Markets Inc., told Bloomberg. He said investors should consider Tiffany & Co. (NYSE:TIF) and Coach Inc. (NYSE:COH), which have seen share-price gains this year of 29% and 19%, respectively.
Also look for FedEx Corp. (NYSE:FDX) to get a boost from the holiday season. It announced it would add 20,000 employees to handle the season’s chaos, especially with increased online shopping requiring more package delivery needs. The company estimates it’ll handle 260 million shipments between Thanksgiving and Christmas, 12% more than last year.
FedEx shares recently hit a two-year low after the company lowered its full-year outlook, but it still reported a 22% profit gain from the year before for the quarter ended Aug. 31, and an 11% rise in revenue. Thomson Reuters places the average 12-month price target for FedEx at $97.48, 19% higher than Monday’s $81.83 closing price.
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