Retailers brace for a ho-hum Christmas

One takeaway from the recent batch of retail earnings is that consumers are getting ever more focused on promotions. Best Buy said on its earnings call Tuesday that consumers are “deal focused," noting that it saw lower demand between sales events. Target, which reported last week, said there was a more pronounced sales dip than usual the week before and the week after its sale event known as Target Circle Week. Shoppers are responding strongly to stock-up promotions on essential categories, according to Target.

And while consumers are gravitating to value, not all value retailers are winning. Walmart had a great start to the holiday season, with comparable sales growth even in discretionary categories. T.J. Maxx-owner TJX Companies reported a strong quarter too, beating Wall Street expectations on comparable sales. Ross Stores and Burlington Stores, though, both saw tepid comparable sales growth of 1%, missing expectations. Both retailers blamed the weakness on warm weather, with Burlington noting that about 15% of its sales in its third fiscal quarter typically come from cold-weather categories.

In a tough selling environment like this, merchandising and operational missteps can be disastrous. Value-tier department store Kohl’s shares plunged 17% on Tuesday after it reported that comparable sales declined 9.3% in its quarter ended Nov. 2 compared with a year earlier. Poor merchandising choices were in part to blame: The company said it didn’t order enough private-label brand products, a value price point that many Kohl’s customers depend on, during the quarter. Not having enough fine jewelry and petite apparel also hurt sales.

Target’s shares fell 22% the day it reported disappointing results last week. While the company blamed economic conditions for the weakness, some customers have complained that the retailer—long known for exciting merchandise—has lost some of that “Tarjay" magic recently, and that too many items are locked up behind glass cases.

Retailers catering to high-income consumers are faring slightly better. Macy’s reported better sales performance at its high-end department store chain Bloomingdale’s than at its namesake stores. Nordstrom reported healthy comparable sales growth of 4% in its quarter ended Nov. 2.

But retailers with an eye for exciting products are still winning. Abercrombie & Fitch reported comparable year-on-year sales growth of 16% in its last quarter and raised its full-year sales guidance. Gap, which is undergoing a transformation under a new chief executive, saw comparable sales grow 3% in its namesake brand and 5% growth in its Athleta brand in its quarter ended Nov. 2. Dick’s Sporting Goods reported a healthy 4.2% growth in comparable sales in its quarter ended Nov. 2. Industry analysts say the sporting goods retailer is pulling in customers with on-trend products and compelling store presentation.

Not all signs point to doom and gloom. U.S. consumer confidence improved in November from October, according to the Conference Board. The survey’s 12-month inflation expectations declined to 4.9% in November, the lowest since March 2020. Election uncertainty is no longer weighing on consumers’ minds. Meanwhile, colder weather recently should help retailers that missed out on coat and sweater sales last quarter.

But this holiday’s selling season is already a challenging one, with five fewer days between Thanksgiving and Christmas compared with a year earlier. Another potential headwind for retailers is the threat of tariffs—specifically those on China—when Donald Trump becomes president next year. In response, stores might have to stock up inventory in the coming quarters, a strategy that comes with the risk of unsold merchandise and steep discounts. So far, there haven’t been overwhelming signs of this, though Dick’s Sporting Goods did report an inventory uptick of 13% and Best Buy’s stockpile rose 3%.

Retailers that have done a nice job of listening to customer needs this year will do just fine this holiday season. Those that haven’t can expect a lump of coal in their stockings.

Write to Jinjoo Lee at jinjoo.lee@wsj.com