Retail winners pull away from the pack

As the holiday season heats up, retailers are getting a fresh opportunity to attract even the most selective shoppers and persuade them to splurge on discretionary items such as party outfits, makeup or toys.

But the free-spending season isn’t lifting sales for everyone.

Retailers’ earnings reports over the past two weeks have illustrated a sharp divide between brands that are winning sales and those that are missing out.

Target, Kohl’s and Best Buy each reported disappointing third-quarter results as early holiday deals fell short of meaningfully boosting their businesses. On the other hand, Walmart, Dick’s Sporting Goods and Abercrombie & Fitch posted strong sales in their most recent quarters.

The reports come after a more-than-two-year stretch of inflation in the U.S. that caused shoppers to become selective about spending while balancing higher prices on groceries, housing, restaurant meals and more. Those patterns have persisted, even as inflation has cooled, forcing retailers to work harder to get customers to open up their wallets.

Choosy consumers have made the gulf between successful and struggling retailers even more stark heading into the holiday shopping season, said Neil Saunders, managing director of GlobalData Retail.

“People are still spending, but they perhaps don’t have as much to spend,” he said. “So rather than buying five things, they might be buying three things. And under that environment, it’s easy to say, ‘Well, where do I not go to buy things? Who am I going to cut out?’ And they’ll cut out the weak retailers.”

Holiday spending in November and December is expected to increase by 2.5% to 3.5% compared with 2023 and range between $979.5 billion and $989 billion, according to the National Retail Federation, a retail trade group. That’s a smaller year-over-year increase than the 3.9% jump from the 2022 to 2023 holiday season, when spending totaled $955.6 billion. The NRF’s figure excludes automobile dealers, gasoline stations and restaurants.

Yet retailers’ forecasts for the holiday quarter have varied widely. Dick’s and Abercrombie both hiked their full-year outlooks this week and said they expect a strong holiday shopping season.

“We’ve seen a strong early response to our holiday assortments, and we are ready and excited for the peak selling period to kick into high gear this week,” Abercrombie’s Chief Operating Officer Scott Lipesky said on the company’s earnings call Tuesday.

Nordstrom and Walmart struck a more cautious note.

On Nordstrom’s earnings call Tuesday, CEO Erik Nordstrom said the department store owner noticed slower shopping trends at the end of October and factored those into its forecast. The company offered a muted guidance adjustment, raising the low end of its sales forecast, despite beating Wall Street’s third-quarter sales expectations.

Walmart Chief…