It is not all bad news. For all the carnage this week, Wall Street has hardly abandoned retailers. Since November 12, a broad S&P 500 retail index has advanced 2.5 per cent, reflecting in part the outlook for strong consumer spending. Year-to-date, the index is up 25 per cent, the same as the S&P 500 overall.
Home improvement retailer Home Depot has jumped 11 per cent during that period and surpassed Walmart in market value, bolstered by sustained demand from do-it-yourselfers and the US housing industry. Discount chain Dollar Tree Inc. has led the industry with a 30 per cent surge in the span, thanks to its plan to ditch its namesake price point and start charging $US1.25 ($1.75) for most of its products.
Satisfying demand is expensive
There is little question consumers are reaching for their wallets. Online consumer spending jumped 20 per cent this month through to Tuesday in a sign that holiday shopping has started early, according to the Adobe Digital Economy Index.
During the last two months of the year, US e-commerce spending was expected to climb 10 per cent to a record $US207 billion, Adobe said. According to the National Retail Federation, total holiday sales will rise 8.5 per cent to 10.5 per cent from 2020 to reach as much as $US859 billion.
But satisfying that demand is likely to prove expensive. Walmart and Target chartered their own cargo ships to sidestep some of the supply chain snarls. That helped them bolster inventory, fuelling confidence that their shelves will be well stocked. But the extra costs contributed to declines in their gross margin, a key measure of profitability, which rattled investors.
Nike said higher air-freight costs during the holiday season would crimp profitability. Switching to air freight from ocean transportation was a drag on clothing retailer Gap, too. Even after putting more merchandise on planes, Gap still suffered from “acute supply chain headwinds” that left the company unable to take advantage of strong demand, chief executive Sonia Syngal said.
Supply problems also felled luxury chain Nordstrom, which ran short of key items such as women’s shoes and apparel at its Rack off-price chain. Gap and Nordstrom both fell the most on record in Wednesday trading.
With slow transportation causing delays in product shipments, many retailers will have less time to sell their goods before Christmas. Gap, for example, “may have to engage in promos if demand slows, partially undoing the inventory rationalisation efforts through last year”, Cowen & Co. analyst Oliver Chen said in a report.
Demand does not appear poised for a slowdown during this holiday season. But if shoppers start to retrench next year amid a broad rise in costs, the road for retailers may get rockier.
Source : https://www.afr.com/companies/retail/retail-earnings-reveal-few-winners-as-holiday-shopping-begins-20211125-p59c9u491