Are department store shoppers getting a late start on Christmas or taking a pass?
Described as a “nightmare before Christmas” by The Wall Street Journal, Macy’s and Kohl’s saw an unexpected sales slowdown in October and early November, leaving questions about whether holiday gifting is being delayed or cut back in a hyper-inflationary period.
“When we think about last year, the consumer was flushed with cash, and there was a pull forward of demand on well-documented inventory constraints,” said Jeff Gennette, Macy’s CEO, on a quarterly call last week. “This year, [the] consumer is hearing about a glut of inventory. They are under a tighter budget, feeling the impact of inflation on non-discretionary items and beginning to deplete their savings. With that in mind, we believe they are waiting until closer to holiday to make purchases.”
Macy’s sales picked up last week as cold weather spurred demand. Macy’s wide fourth-quarter guidance calls for sales to be flat to down 22 percent year over year.
The flat guidance assumes sales patterns revert back to 2019 patterns when holiday purchases were late. The bleaker side of the outlook assumes October and early November trends continue, “pressure on the consumer persists, and the promotional competitive landscape intensifies throughout the holiday and into January,” said Mr. Gennette.
Kohl’s likewise attributed recent sales weakness to a later holiday start. Management withdrew guidance due to the sales volatility and its CEO transition. Kohl’s chairman Peter Boneparth told analysts, “Visibility for the fourth quarter has been as difficult as any period I can remember.”
The cloudy holiday outlooks came a day after Target likewise blamed late holiday purchasing for softer sales. The retail industry is sitting on already elevated inventories, especially in categories such as apparel, as supply chain bottlenecks have eased. The late holiday purchasing may force stores to mark down earlier than planned.
Katrina O’Connell, Gap’s EVP and CFO, said last week, “We know we have to get out ahead of ensuring that we’re early enough, that we’re promoting at a time when she’s willing to buy, and we’re not waiting too late to clear the merchandise. And on the flip side, if they’re not going to shop until later, we don’t want to be too far out ahead of it.”
- Nightmare Before Christmas for Department Stores – The Wall Street Journal
- Macy’s, Inc. Reports Third Quarter 2022 Results – Macy’s
- Macy’s (M) Q3 2022 Earnings Call Transcript – The Motley Fool
- Kohl’s Reports Third Quarter Fiscal 2022 Financial Results – Kohl’s
- Kohl’s (KSS) Q3 2022 Earnings Call Transcript – The Motley Fool
- Gap Inc. Reports Third Quarter Fiscal 2022 Results – Gap
- Gap (GPS) Q3 2022 Earnings Call Transcript – The Motley Fool
- Macy’s, Kohl’s, Gap point to cloudy holiday retail picture – The Associated Press
DISCUSSION QUESTIONS: How worrisome should the late holiday purchasing trend be for department stores? What advice would you have around markdown strategies, given the uncertain demand?