Retailers Vs e-Commerce This Holiday Season
$AMZN, $TGT, $LOW, $KSS, $JWN, $KSS
The Big Q in this strong US economy this holiday is: Will retailers may have to spend heavily to win?
Steep discounts are as familiar during the holidays, but this year retailers are after a piece of the e-Commerce market as Amazon.com Inc. (NASDAQ:AMZN) and Target Corp. (NYSE:TGT) offer free shipping for small purchases.
Underwhelming earnings reports this week from Target to department store Kohl’s Corp. (NYSE:KSS) and home-improvement specialist Lowe’s Cos. Inc. (NYSE:LOW) reminded investors that US tariffs on imported goods, fickle consumer tastes and competition could eat away at profits this year.
Shares of Target fell 10% last Tuesday as the company said profit margins declined due to growing investments in boosting its online business, wage increases, price cuts and the higher cost of preparing and shipping orders.
The retailers and e-Commerce players are fighting it out. Amazon is buying that consumer retail business. So is a price a war. The game has changed for retail players now.
They have almost no gross margin and they are giving away shipping. Amazon is playing the long game hoping to get another trillion dollars’ worth of revenue and then raise prices 1% the numbers can work.
More retailers face pressure to cut into their margins or sacrifice growth, creating a catch-22 for investors even as consumers seem poised to open up their wallets for the sales that follow Thursday’s US Thanksgiving Day holiday. About 38% of American consumers shopped on “Black Friday” according to the data.
Even so, money managers are getting more selective, and holdings bonds issued by Nordstrom Inc. (NYSE:JWN), a Top line retailer that is well suited for the current market, the company’s managers have been effective and target a solid, upscale niche.
Nordstrom shares have added 10% YTD including dividends, sharply paring gains closer to 50% earlier this year after reporting disappointing Q-3 same-store sales.
Some managed money is positive about retail stocks because US consumers are getting a raise, seeing inflation-adjusted wages gain at all income levels for the 1st time since the Ys 2007-2009 global financial crisis.
The role of retail to a customer’s life has changed. There are a number of companies who have not yet invested in an emotional connection with consumers which is the trend.
Have a terrific weekend.