Could This Holiday Season Be a Disaster?

This week, Wal-Mart reported a pretty disappointing quarter and said the holiday season would be even more competitive than we expected. Same-store sales in the U.S. were down 0.3% at Wal-Mart stores last quarter, and Sam's Club experienced just a 0.1% rise. Wal-Mart said it would be fighting for every dollar it could from consumers, but investors should wonder if this is this a precursor to a terrible holiday season.

So far, the market has barely reacted, and the Dow Jones Industrial Average (DJINDICES: ^DJI  ) was actually up 1.3% for the week. Year to date, the Dow is up 24.5%, but can this continue if consumers aren't spending this holiday season? While Wal-Mart isn't a perfect bellwether for the Dow, it is a measure of how the broader economy is doing. If Wal-Mart is struggling, it's bad for every stock on the market, isn't it?

That may not be the case anymore.

Holes emerge in Wal-Mart's plans
Wal-Mart just reported its third straight quarter of falling same-store sales, usually the first sign a retailer is in trouble. Wal-Mart's plan to fix its problem includes cutting costs, which is part of its problem in the first place.

Image: Wal-Mart.

I highlighted last month that both Target (NYSE: TGT  ) and Costco are outgrowing Wal-Mart, in part because they have better merchandise and better stores. Cutting costs will only make the problem worse.

There have also been plenty of reports of low inventory at Wal-Mart and not enough staff. If there's a way to make falling same-store sales get worse, it's by having less inventory and fewer staff.

Wal-Mart's problems may be self-inflicted, but that doesn't mean it will be a great holiday for retailers.

The economy isn't helping anyone
From a macro perspective, the economy is going to hurt retailers. Unemployment is still high, and consumer confidence has been down recently, suggesting that consumers may choose to spend a little less this holiday season. The top end of consumers are still generating an outsized portion of the growth in the economy, which means that discount retailers are going to struggle.

US Unemployment Rate Chart

U.S. Unemployment Rate data by YCharts

But the bigger factor affecting retailers such as Wal-Mart and Target will be the growth of online retail. Amazon.com (NASDAQ: AMZN  ) isn't expecting a bad holiday season, and that's bad news for traditional retailers.

Something's got to give
Online sales are growing, and those sales have to come from somewhere. Amazon has vastly outgrown Wal-Mart and Target over the past five years, which wasn't a big deal when Amazon was a $7 billion company -- but it is a big deal now that it has $70 billion in sales.

AMZN Revenue (TTM) Chart

AMZN Revenue (TTM) data by YCharts

Each percentage point of growth for Amazon is a loss for discount retailers. This is a zero-sum game, and not everyone can grow on the back of limited consumer dollars. If Wal-Mart or any other brick-and-mortar retailer wants to complain about sales growth this holiday season, it may be better to look at online retailers rather than the death of the consumer.

Foolish bottom line
Given weakness in the economy as a whole, I don't think any retailer should expect outstanding numbers this holiday season. But we can't assume that just because Wal-Mart does poorly, the rest of the retailers are having a bad year. They may just be losing sales to online retailers.

When you're reading sales figures this holiday season, keep in mind the growth of online sales. Even flat same-store sales may be a win for brick-and-mortar retailers this year. After all, where are you spending your holiday dollars this year?

Is this the death of Wal-Mart?
Wal-Mart may be on its last leg, but people aren't done buying goods from all retailers. To learn about two retailers with especially good prospects, take a look at The Motley Fool's special free report: "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail." In it, you'll see how these two cash kings are able to consistently outperform and how they're planning to ride the waves of retail's changing tide. You can access it by clicking here.


Read/Post Comments (4) | Recommend This Article (1)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 16, 2013, at 3:13 AM, rcarterbrown wrote:

    The authors lack of knowledge of simple grammar doesn't inspire confidence in the article... "Could This Holiday Season Could Be a Disaster?" should be either "This holiday season could be a disaster" OR "Could this holiday season be a disaster". Did nobody bother to proof read this before it was published? Talk about amateur hour....

  • Report this Comment On November 16, 2013, at 7:25 AM, hollywoodlafl wrote:

    I've been saying this for a few years now...

    CAPITALISM is FAILING!

    Greed, especially exhibited in the Stock Market Casino, has exposed itself for a few years now and the problem is that it still continues.

    PROOF: Companies are working people part time, not paying benefits and charging exorbitant prices on goods and services. Ask yourselves this...WHY is the market over 15,000? Should it be?

    Families are buckling on the fact that their pay is shrinking and NOW, to make matters worse, they have to fork over 200+ per month for a bogus health care plan!

    The food stamp issue is a SMALL and insignificant problem for Walmart. Christmas sales will be quite dismal this year.

    Businesses WILL report "LESS THAN EXPECTED EARNINGS" in the third quarter, due to...

    #1) The Affordable Health Care c*r*a*p...

    #2) The reduction of food stamps to recipients...

    #3) The TALK of raising the minimum wage, which, as you are aware, companies will increase costs to offset OR go out of business.

    NOTICE: The advertisements on your TV's and the sound of desperation. I am seeing some clear signs that this will not be a good christmas for a lot of people. 2014 looks like another dismal year, mixed in with the political b*u*l*l*s*h*i*t for the 2014 elections.

  • Report this Comment On November 16, 2013, at 7:31 AM, hollywoodlafl wrote:

    My last comment, I cut and pasted from another story, RE: "WALMART WANTS FOOD STAMP CUSTOMERS".

    For THIS article, I believe that this holiday may lead to the "Death" of...

    JC Penny, Sears and maybe even Kmart.

    These companies are really trying to hold on, but are incapable of doing so.

  • Report this Comment On November 16, 2013, at 8:24 AM, Matt8265 wrote:

    I know personally that 10 of my Facebook friends and I are boycotting Walmart due to their low employee pay. This is one of the reasons they have started a new advertising campaign to " spin " their position. I'm done with them and McDonalds ( both are down in sales ) as I use Amazon, JCP, Meijer and local merchants. I don't care if it does cost more ... sometimes price isn't the only factor in a purchasing decision.

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