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Why These 3 Retail Stocks May Win This Holiday Season

By Adria Cimino - Dec 4, 2020 at 8:18AM

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Revenue may climb for some retailers this season -- if they deliver what shoppers want right now.


Key Points

  • Two of these companies have strengths in e-commerce; a Deloitte survey shows 65% of shoppers will favor online shopping this season.
  • Visits to physical stores dropped 52% on Black Friday, Sensormatic Solutions data shows.
  • The third company on this list may benefit from low prices and its off-mall location.

Our experts issued a rare "Double Down" Buy alert on this one stock... Learn more.


If you're an investor in retail stocks, and you stopped by the local mall over the Black Friday weekend, you might be a little worried. Packed parking lots and shops weren't on the agenda this year. With coronavirus cases having risen throughout November, consumers continue to avoid contact with others as much as possible. Visits to stores fell about 52% on Black Friday compared to last year, according to early data from Sensormatic Solutions. Does that mean the retail stocks in your portfolio will put coal in your Christmas stocking this year?  Not necessarily.

Companies with solid e-commerce platforms and strength in delivery or curbside pickup may be heading for their best holiday season ever. Here I'll talk about two that will win for these reasons. The third company that may stand out this season benefits from the shopper's love for low prices and surprise finds -- especially in an off-mall setting.

A woman, surrounded by gifts, holds a cup of coffee and shops online in her living room.

Image source: Getty Images.

1. Target

Target ( TGT -1.62% ) hasn't shared the woes of other retailers this year. The company's e-commerce platform was already growing prior to the coronavirus outbreak. Target's comparable digital sales have climbed more than 25% annually for the past six years. And the retailer has been ahead of the game regarding options to collect an order. It's been offering order pickup for five years, for example.

In the most recent quarter, Target's digital comparable sales advanced 155%, and store comparable sales increased nearly 10%. Even though online sales growth has far surpassed that of in-store sales, stores are an integral part of the Target picture. Stores fulfilled about 95% of the company's quarterly sales. Order pickup and other same-day services soared 217%.

This holiday season, I expect these online and delivery strengths to keep the good times rolling for Target. And here's another reason many will shop at Target: Its wide range of merchandise makes it a one-stop shopping trip -- online, or in the store.

2. Amazon

We might consider Amazon ( AMZN 1.33% ) the retailer that launched this year's holiday shopping season. The online retail giant held its Prime Day sales event in October. Monthlong Black Friday deals -- at Amazon and other retailers -- followed. Amazon doesn't release Prime Day sales figures. But Prime Day revenue likely reached more than $10 billion, according to a Digital Commerce 360 estimate.

Like Target, Amazon will also win this holiday season in part due to its manner of getting orders to customers. For shoppers who aren't members of Amazon's Prime program, delivery is usually free with orders of $25 or more. Prime members, however, receive free same-day or one- to two-day delivery on everything shipped by Amazon. Options are many: delivery to your door, in-garage delivery, and even delivery to an "Amazon hub" location where you can pick up your package. Since members pay a fee of $119 per year for Prime, they're likely to opt for shopping on Amazon as much as possible.

And finally, the general outlook for online shopping this season should work in Amazon's favor. Deloitte's annual holiday retail survey shows about 51% of shoppers this year are nervous about the idea of in-store shopping. And 65% favor online shopping to stay away from crowds, according to the report.

3. TJX

TJX Companies ( TJX 3.37% ) hasn't had an easy time this year. The owner of T.J. Maxx, Marshalls, and HomeGoods had to close stores during the peak of the coronavirus pandemic. Some stores still remain closed, mainly in Europe. But there's a bright spot. In the recent earnings report, recovery has started.

In the quarter, TJX measured sales only on days stores were open and compared them to the same days in the year-earlier period. By that measure, overall revenue slipped only 5% year over year to about $10 billion. And at the HomeGoods chain, sales climbed 15%.

Why are shoppers heading to TJX's stores while other retailers are struggling? Off-price retailers offer the latest trendy items at usually unbeatable prices. But there's more. These stores also offer a "treasure hunt" experience. Shoppers like the excitement of finding not only a bargain, but also something unexpected. The off-mall location of TJX stores is another advantage; these days, traffic is higher in strip plazas where customers shop for groceries and other essentials.

So what do all three of these retailers have in common? They target at least one of the two priorities of today's shopper: low prices and social distancing. These elements are sure to be crucial in determining which retail players will finish the holiday season with bells on, and which will finish with a "lump of coal".

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$3,435.03 (1.33%) $45.24
Target Corporation Stock Quote
Target Corporation
TGT
$243.55 (-1.62%) $-4.02
The TJX Companies, Inc. Stock Quote
The TJX Companies, Inc.
TJX
$73.08 (3.37%) $2.38

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