Booming Holiday Sales May Get Ho-Ho-Hum Reaction

(Bloomberg Opinion) -- The forecasts are trickling in, and it looks like retailers are feeling good about the coming holiday season. Yet I suspect the industry will have trouble getting much more than a polite clap from Wall Street when the results are tallied.

Retail’s version of the Super Bowl will take place this year against an extremely favorable consumer backdrop, so good news is expected. Some big chains have acknowledged they are already benefiting from such conditions. Target Corp. CEO Brian Cornell said in August — as his company delivered its best quarterly comparable sales growth in 13 years — that the consumer environment was "perhaps the strongest I've seen in my career." David Jaffe, the CEO of Ann Taylor's corporate parent, Ascena Retail Group Inc., told investors on the company's latest earnings call that he sees this as a "bit of a goldilocks moment in the economy," where things are lining up just right for people to feel primed to spend.

Also, some companies have already seen their share prices pumped up a good bit this year as they have recorded stronger sales, thanks to both the macroeconomic picture and their long-term strategic efforts. It may take more than a satisfactory holiday season to drive them higher from here. 

And consider that the 2017 holiday season was a merry one for the retail industry. 

As they “lap” last year’s solid figures, it will be challenging for retailers to record eye-popping revenue and comparable sales gains. Or, at least it will be more challenging than it was in 2017, when some of them were up against weak figures from the prior year. 

Take Best Buy Co. Last year, it saw a sizzling 9 percent increase in fourth-quarter comparable sales from a year earlier, its best growth on that measure since 2003. But that blockbuster result was in comparison to the fourth quarter of the prior year, during which comparable sales declined 0.7 percent.

So you can see why, even though Best Buy is in good shape, CEO Hubert Joly has said we shouldn’t expect numbers like last year’s to be a new normal for the big-box electronics behemoth. Several other retailers will face a similar, if not as pronounced, dynamic:

Lastly, there’s this: However roaring this holiday season is, President Donald Trump’s trade war with China casts a shadow for retailers in 2019. The tariffs he slapped on $200 billion worth of goods in September are set to rise to 25 percent on Jan. 1. While stores had ordered much of their holiday merchandise before these tariffs were enacted, eventually their shelves will be stocked with products that come with higher price tags or slimmer profit margins. That seems likely to stifle the momentum the industry has been enjoying. And it might keep analysts from getting too starry-eyed when retailers report their holiday results in January and February. 

On a more granular basis, I expect recent trends in the retail industry to carry through during the holiday rush, with standouts such as Ulta Beauty Inc. and Lululemon Athletica Inc. likely to score robust sales and laggards like Sears Holdings Corp. and Pier 1 Imports Inc. continuing to struggle. Overall, the industry will do just fine. It just may take more than that to get a rise out of investors. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Sarah Halzack is a Bloomberg Opinion columnist covering the consumer and retail industries. She was previously a national retail reporter for the Washington Post.

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