Retailers Speak Up About Christmas Sales And Profits

Suddenly, everybody has realized that delivery of merchandise has been delayed at ports and further delayed because of backups in over-land transportation. Some companies like Costco, Walmart WMT , Ikea, and Lululemon have chartered or rented their own container ships, while Home Depot HD is flying merchandise directly to the U.S. in order to get their goods here at a predictable time and, hopefully, before Christmas eve.

Everybody is worried, and fears of empty shelves and late deliveries shocked stock market activity on consumer stocks last Thursday when Armageddon was being predicted for the holiday season. Retail stocks recovered somewhat on Friday, but still left an uneasy feeling for retailers, investors, suppliers, and everybody else connected with the retail industry.

I contacted several retail executives whose opinions I respect. Here is their consensus, albeit personal, of what will shape this holiday season and carry into 2022.

Delays

1.   Ports. There are terrible delays at ports across the entire country. Container ships are sitting outside San Diego, Los Angeles, and other ports like Baltimore, Charleston, and New Orleans. Merchandise is being received and processed but slowly due to inadequate help. At the same time, Barron’s states that there is a +30% increase of trans-pacific freight shipments.

2.   Overland. Overland transportation is in chaos. Lack of drivers and a lack of staff to load trucks – it is also lack of manpower in general. The delays are severe.

3.   Local. Some additional delays occur at warehouses and distribution centers. Lack of manpower once again is the main reason.

Out-of-stock Issues

4.   Shortages. It is always reasonable to expect some merchandise shortages as we get close to Christmas, and this year those shortages will likely be worse than normal due to the delays throughout the supply chain mentioned above.

5.   Substitutes. Those shortages will motivate customers to make changes. Customers are likely to shop for the “next best thing”. In other words, the consensus is that customers are in a shopping mood and have money to spend on gifts for their family and clothing for themselves.  If they cannot find the item on their shopping list, they are likely to buy something close to the wanted item. That means retailers will still ring up sales.

6.   Low inventories. As a result of the delays, retailers will go into the Christmas selling season with lower inventories. Since many believe that customers are likely to substitute merchandise on their gift list, this can help retailer margins.

Luxury

7.   Luxury items. It was noted that luxury items are selling very well in every classification right now and that trend is expected to continue. Sales should be brisk for these products. 

Outlook

8.   Overall. It is likely that retailers will have a good selling season. Holiday sales will start early, and hot items will be in strong demand and may run out early in the selling season. In fact, executives have warned customers to start buying holiday gifts as soon as possible, as thousands of shipping containers have weeks of delay. If that early shopping is the case, retailers will have a profitable season since there will be fewer markdowns.

9.   Shortages. It is generally agreed that shortage of merchandise will continue through mid-year 2022. There is no quick relief in sight.

10.Inflationary pressures. FedEx FDX and UPS continue to raise prices – which have to be passed on to the consumer. This will become an issue for both retailers and customers to address.

POSTSCRIPT: Based on the information that I collected it is reasonable to assume that it will be a good Christmas season. More stores like Best Buy BBY , Macy’s M , Bloomingdale’s, Kohl’s KSS , Walmart, and others are likely to join Nordstrom JWN , Home Depot. Dick’s Sporting Goods DKS . Target Stores, Academy Sports and Outdoors, B.J. Wholesale Club BJ , and not open on Thanksgiving Day; they will focus on Black Friday. Such a decision will be a warmly welcomed company courtesy by many associates who will be able to stay home and enjoy the holiday.

The lack of a broad assortment of merchandise is likely to reduce the markdowns at the end of the holiday season. That fact will allow the end-of-the-season financial report to show higher profits for many retailers. Such results are a reverse from other holiday seasons and will make retailers and investors alike happy since they are likely to beat earnings estimates.