Certain retailers’ need to liquidate excess stock could create a competing price war this holiday season. Elsewhere, expected growth leads to a sunny outlook.
In an unusually warm fall season, news from the retail world still managed to send shivers down the spine of investors and analysts. The abnormally mild temperatures spurred by this year’s El Niño translated to lower sales in fall styles and cold-weather gear in general.
Retail giant Macy’s recently cut its sales forecast, a move that damaged their share price. Major chains like Urban Outfitters and Macy’s are seeing inventory pile up, causing investors and retailers to worry.
A Discount Red Alert for Retailers
The only solution to clear out overstocked shelves and energize buying behavior seems to be offering deep, aggressive discounts. “We will need to liquidate this inventory in the fourth quarter so that we can maintain the flow of fresh new merchandise,” Macy’s CFO Karen Hoguet told Reuters.
As is typical in the retail world, generous offers by one brand are expected to trigger competing offers by others. This form of “markdown warfare” can cut into expected revenue and create uncertainty around profitability.
Brands that refuse to toe the line are often left out in the cold. “Competing on price is something that won’t go away,” analyst Karen O’Brien told the Financial Times. “The only ones that can withstand these pressures are companies with brand equity, where people want to buy the brand and don’t just shop where it’s cheapest.”
Outlook Not As Dire for Those Not Caught in the Middle
While discount dives from brands having difficulty moving shelf stock are sure to impact this holiday’s sale prices, other brands like J.C. Penney will be seeing less downward pressure. The retailer recently reported a 6.4 percent increase in same store sales and a 5 percent overall revenue growth throughout the third quarter.
In total, J.C. Penney’s has bucked the downward trend in sales, beating out retailers like Kohl’s, Macy’s and Nordstrom’s in performance.
High-end brands likewise hope that they can sidestep the issue to avoid chipping away at the prestige of their brand image. “Luxury brands could resort to promotions based around rewards points that offer the same incentive as discounting but without penalizing the image in the long-term, which price reductions could do,” says Luxury Daily.
Elsewhere, off-price stores that take advantage of liquidated inventory like Ross and TJ Maxx anticipate a field day of “treasure hunters” looking for the lowest possible price on brand name goods. The loss of a few mid-range stores could mean big gains for these types of retailers.
Finally, online sales are expected to avoid much of the excess-inventory issues. Amazon hired a staggering 100,000 seasonal workers in anticipation of this holiday’s warehouse rush, and they have also added 25,000 full-time workers in the past few quarters.
Altogether, the National Retail Federation anticipates 46% of all holiday buying and browsing activities to take place online this year. They also expect a 3.7% uptick in sales compared to 2014.
At the end of the day, forecasts like these signal that nearly everyone will win this holiday season, especially shoppers who will be privy to some of the heaviest ongoing discounts seen in quite a while.