As we approach the busiest shopping months of the year, there are mixed opinions about the strength of this season and consumer spending overall. Analysts see challenges from a shorter shopping period, continued uncertainty around tariffs, and difficult weather comps.
While some analysts are bearish based on channel checks and management commentary, the National Retail Federation (NRF) believes that U.S. households are in good shape with consumer confidence high. Consulting firm Deloitte predicts a 4.5% to 5% increase in holiday retail sales. So who will be this year's retail winners and losers?
Here are three companies that should outperform during these all-important months.
A popular brand and innovative products that will boost holiday sales
Nike (NYSE:NKE) is benefiting from macro consumer trends favoring athleisure-wear and active lifestyles, increasing the demand for its products. Nike's brand also remains top of mind for teenagers, who typically spend about $300 a year on footwear. In the company's latest earnings report, management highlighted the strength of its kids' business -- footwear and apparel just experienced its biggest back-to-school season ever, driving double-digit growth for the quarter. Those results, driven by Air Max 270 sales, bode well for holiday sales.
During the most recent earnings call, management noted, "Air Max 270 led to the largest gains in footwear for the quarter." Product innovation that blends Air Max with React in multiple color waves has been a huge hit. Nike is also enjoying strong growth from its digital platforms with Nike Digital revenue up 42% year over year (speeding up from the 35% growth in fiscal 2019). The company has been investing continually in initiatives like its mobile apps and customization options.
Collaborations and unique store experiences that will resonate with shoppers
Target (NYSE:TGT) has also made strides in remodeling its stores to give consumers a unique and appealing shopping experience. Analysts believe Target will be able to increase its sales, even in the event of a slowdown in consumer spending, because it offers the convenience of one-stop shopping with everything from groceries and electronics to home goods and limited edition items from exclusive collaborations.
For example, Target has set up partnerships with Toys R Us and Disney that will help the retailer capture a larger share of toy sales during the holidays. The Toys R Us partnership has Target.com fulfilling purchases made at both the relaunched Toys R Us website and retail stores. The latter claimed about 15% of all toy sales in the U.S. prior to its closures last year, so the partnership has plenty of potential to drive traffic and sales for Target, both online and in stores. Similarly, the move to open Disney boutiques within Target stores will help draw in consumers looking for the hottest toys of the season, and they can do their other Christmas shopping while at the store, too.
A retailer that 75% of U.S. consumers plan to shop with this holiday season
Walmart (NYSE:WMT) is also likely to win with consumers this holiday season, given its status as the big-box retailer with the biggest focus on value-priced merchandise. The company's digital business and newly-expanded grocery pickup and delivery services are also winning over many shoppers.
Like its peers, Walmart started offering deals online as early as October in order to plan for the shorter period between Thanksgiving and Christmas. And this will be the first holiday season shoppers can enjoy free next day delivery on orders $35 and up, though the service is only available in select areas.
Walmart's reputation as a one-stop shopping destination will appeal to price-sensitive consumers. Shopkick's survey about consumer behavior during the holidays indicates that 53% of consumers plan to do most of their shopping with big-box retailers like Walmart or Target, while 42% said that low prices were the top incentive driving purchases. Coresight Research's recent survey similarly found that 75% of consumers in the U.S. planned to buy goods from Walmart this holiday season.
Overall, these three retailers all have unique and compelling initiatives in store to appeal to shoppers over the next two months. While Target and Nike set themselves apart with innovative and exclusive products, Walmart is leveraging its low-prices, convenience, and selection. Among retailers, these are the best-in-class companies to watch during the busiest quarter of the year for the sector.