Among those who will be cheering this week for the end of this highly contentious and emotionally draining election season are America’s retailers, now itching for shoppers to get into the holiday spirit.
Minneapolis-based Target Corp. and Richfield-based Best Buy Co., both of which had a bumpy first half of the year, are especially eager for people to stop bickering and start planning what will go under the tree. Their holiday ads have started airing on TV, including during the World Series. Their stores are now decked out with holiday signage. And both have launched free holiday shipping promotions.
The holidays are always a central focus for retailers. The season often accounts for about one-third of their annual sales, as well as a disproportionate amount of profits. But this year, analysts said, the stakes are even higher for the Twin Cities’ two industry giants.
While many retail forecasts are calling for 3 to 4 percent growth in holiday sales, slightly better than the last couple years, both Target and Best Buy are gearing up for more modest growth as they grapple with a number of industry and company-specific challenges.
“They both have something to prove,” said Carol Spieckerman, a retail consultant.
Target and Best Buy are in the midst of multiyear turnarounds under chief executives who were brought in from the outside. And both are facing a growing threat from Amazon, which is poised to once again rake in a greater share of holiday dollars as spending continues to shift online.
The firm Cowen and Co. notes that Amazon has been rapidly growing its rank of Prime members to an estimated 49 million households that get access not only to its streaming video content but also to free two-day delivery.
The online behemoth also has expanded its Prime Now service to more markets, including the Twin Cities, offering delivery within two hours on select products, a service that is especially in high demand in the final sprint to Christmas.
On top of that, Amazon has been aggressively expanding newer categories such as clothing.
“Amazon is unstoppable,” said Robin Lewis, CEO of retail strategy publication the Robin Report. “They’re going faster than anybody. They’re growing product categories. … They are a threat to all of these guys, and they know it.”
According to an annual holiday survey by Deloitte, shoppers plan to spend an equal amount online as in physical retail stores for the first time this holiday season. But that doesn’t just mean Amazon and other online-only retailers.
Best Buy and Target, while still catching up to Amazon’s technical prowess, both have been investing in their desktop and mobile sites. Their online sales have been rapidly growing, accounting for about 10 percent and 3 percent, respectively, of overall sales.
Best Buy also now gets many of its orders to customers’ doorsteps within two days — the result of a shift a few years ago to having its stores double as distribution centers for online shipments.
“And it’s free — you don’t have to pay a subscription to get the service,” Hubert Joly, Best Buy’s chief executive, said a few months ago in an obvious nod to Amazon’s Prime program, which costs $99 a year.
Target is more than doubling the number of stores from which it can ship this season to more than 1,000, up from 400 last year. That improves shipping times by about 25 percent, Target CEO Brian Cornell said recently.
“We’re in virtually every neighborhood across the country and can deliver now at a much faster pace,” he said.
Brick-and-mortar retailers also have buy-online pickup in stores in their arsenal — something online-only retailers can’t offer.
The electronics dilemma
Best Buy sales in the first half of the year have been sluggish amid a slowdown in smartphones, but executives are hoping to make up for it in the back half on the back of the iPhone 7, which Apple released last month. It has forecast flat sales for the year.
Analysts are feeling a bit more upbeat heading into the holidays especially as early response to the new iPhone seems to have been better than some expected and more enthusiastic than last year’s iPhone 6S.
“I feel better about this holiday than I have the past couple of years,” said Stephen Baker, who closely tracks the electronics industry for the NPD Group. “There’s enough momentum around a bunch of segments so that electronics can do well. But as a mature, highly built-out industry, tech is always on the razor’s edge.” The popularity of the iPhone 7 will also lead to an uptick in accessory sales such as wireless headphones and smartphone cases, he said.
At the same time, Best Buy is grappling with Samsung’s botched release of its Galaxy Note 7. The models were recalled because of battery fires.
But David Magee, an analyst with SunTrust Robinson Humphrey Inc., said in a recent research note that he doesn’t expect Best Buy’s earnings to be hurt by the fiasco since most customers will likely exchange those phones for another Samsung model or an iPhone 7 instead.
Outside of smartphones, Baker is seeing positive momentum in categories that are hitting a sweet spot such as 4K TVs, drones and smart-home products. He’s also seeing a consumer shift toward pricier laptops.
“I think there is a lot of demand out there,” he said. “I don’t think I would say that the last few years.”
He expects industrywide electronics sales overall to be about flat this holiday, which would be better than the last few years. The wild card, he added, is how aggressive pricing will be on those products this season.
Need to right the course
Target is entering the holiday on shakier ground.
Its executives have told analysts to expect flat sales to a 2 percent decrease during the season as it faces challenges on a number of fronts, including the transition of its pharmacies to CVS, changes to its grocery department and declining electronics sales.
Amid these struggles, three senior level executives have departed Target in recent months in a leadership shake-up that has included its chief digital officer and its grocery chief.
“This is the end of the honeymoon season for Brian,” said Burt Flickinger of Strategic Resource Group, adding that this will be Cornell’s third holiday season at the helm.
To help drive traffic back to the stores this holiday, Target will be touting its promotions more heavily in a bigger TV advertising campaign.
Sean Naughton, an analyst with Piper Jaffray, thinks Target is heading in the right direction with its focus on lower prices, its rollout of more organic products and its new brand launches such as Cat & Jack kids apparel.
“They’re making the right moves — they’re trying to do the right thing,” he said. “But they’re still playing catch-up in e-commerce.”
Some of Target’s other strategic moves under Cornell, such as opening more small stores, won’t start paying off until next year, he added.
Then there are the other holiday season wild cards. Last year’s warmer winter in many parts of the country left many retailers with mountains of parkas and wool sweaters they marked down on deep discount.
This holiday season is off to an unseasonably warm start, too.
“That’s not a great way to start off the holiday,” Naughton said. Retailers “would like it to get colder earlier in the fall and warmer earlier in the spring.”
And there’s no promise that once final votes are cast on Tuesday, the Scrooges will get into the holiday spirit.
Leaders of the National Retail Federation note that in previous presidential election years, spending has often been delayed until after the election but overall seasonal sales were not affected.
Given how polarizing this election season has been, some experts are wondering if there will be the same bounce back this year, especially if there are still unresolved issues lingering after Tuesday.
“There’s a chance we won’t have that level of certainty after the election,” said Sonia Lapinsky of consulting firm AlixPartners, “which could put additional stress on holiday sales.”