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Will this Holiday Season Bring More Cheer to Retailers?

Zacks

From Amazon AMZN to Wal-Mart Stores WMT, retailers are gearing up for the busiest part of the year. Improving labor market, rising disposable income and elevated consumer confidence points to an uptick in sales during this festive season, and retail bellwethers will leave no opportunity to make the most of the season that accounts for a sizeable chunk of yearly revenues and profits. Be it early-hour store openings, huge discounts, promotional strategies, price matching and free shipping on online purchases, retailers will go the extra mile.

Indeed, shopping season is likely to be more blissful for retailers. Market experts asserted that while recent hurricanes resulted in short-term derailment in the economic activity, a lift in the later part of the year remains on the cards. Since Christmas is falling on Monday and 32 days after Thanksgiving, shoppers are getting one extra day than last year and an extended weekend to do last minute purchasing.

What Do Holiday Numbers Unveil?

With the ability and willingness seen in consumers to spend more, retailers could hear their cash registers jingle this time. Data compiled by the nation's largest retail trade group, National Retail Federation projects a 3.6-4% rise in November and December sales (excluding autos, gas and restaurant sales) to $678.75-$682 billion, up from $655.8 billion last year and better than the five-year average sales growth of 3.5%.


According to Deloitte, sales during the holiday season are likely to increase in the band of 4-4.5%, while e-commerce sales are envisioned to improve 18-21%. The data unveiled by Kantar suggests that sales during the fourth-quarter holiday period is expected to jump 3.7%. Data compiled by eMarketer forecasts 3.1% jump in holiday sales (November and December) to $923.15 billion, while retail e-commerce holiday season sales are anticipated to rise 16.6%.

Retailers such as Macy’s, Inc. M, J. C. Penney Company, Inc. JCP, Target Corporation TGT, The Gap, Inc. GPS are bracing up for this year’s race and have announced hiring plans for the upcoming holiday season to meet the holiday rush. Per media reports, Target intends to employ 100,000 associates, while Macy's will hire nearly 80,000 seasonal workers to handle the rush. Meanwhile, Gap is deploying seasonal associates at all stores including Gap, Gap Outlet, Banana Republic, Banana Republic Factory and Old Navy across the United States and Canada. J. C. Penney will hire nearly 40,000 seasonal workers.

Be Hawk-Eyed

The holiday season is nothing less than a battlefield for the retailers fighting hard to win over consumers and with technology playing a major role they are fast adopting the omni-channel mantra. 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.

Wal-Mart is making huge investments in e-commerce initiatives. The company’s acquisitions of ShoeBuy, Moosejaw, ModCloth and Jet.com are in sync with its quest to build an impressive digital brand portfolio. Also, the company partnered with Alphabet’s Google to enable shopping through Google Express using voice-activated service. Target has been also focusing on developing its online business. Recently, it waged war against other retail big-wigs by aggressively cutting prices on a range of items and launched curbside pickup program, at 50 Twin Cities stores.

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 these lucrative options? Out of the stocks mentioned above, Wal-Mart, Target and Gap carry a Zacks Rank #2 (Buy), while Macy’s and J. C. Penney has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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