Target hosted a free “Winter Wonderland” event in New York City to show off the holiday’s hottest toys. It is an example of the extra effort retailers make to motivate shoppers.
Melissa Repko | CNBC
NEW YORK CITY – Last weekend in downtown Manhattan, a long line of families with strollers and small children lined up to enter Target’s “Wonderland”
Santa’s helpers handed out free cookies. Mario and Luigi from Nintendo’s “Super Mario” video game posed for photos. A toy train passed through a miniature village made from the shopkeeper’s gingerbread packets. And children were wide-eyed at the season’s most popular toys, including a large Barbie dream house.
Getting people to show up was one thing. Turning the event into a sale is quite another.
Target’s pop-up event, which will travel to Dallas and Los Angeles, shows the lengths retailers are going to this holiday season to motivate shoppers to open their wallets. Caution and uncertainty have colored the outlook for the peak season as inflation, higher interest rates, the return of student loan payments and consumers’ emphasis on experiences take a bite out of shoppers’ gift and decor budgets.
Holiday spending is expected to grow at a more modest pace than in recent years as customers look for deals. According to the National Retail Federation, holiday-related sales in November and December are expected to increase 3% to 4% year over year. That’s a sharp decline from the pandemic years, but roughly in line with the pre-pandemic growth average of 3.6%.
Over the past two weeks, many retailers, including Walmart, Northstream And Goal have said shoppers have made fewer store visits, postponed big purchases or gotten better deals. This week, Lowe’s, Best Buy And Kohl’s all lowered their sales forecasts. Even some retailers who raised their prospects, such as Dick’s sporting goodsreferred to dynamics beyond their control that could dampen spending.
Marshal Cohen, chief sector adviser at market research firm Circana, said this year will be a “complex Christmas” for retailers.
The average credit card balance is at a 10-year high. Fall weather was unseasonably warm in many parts of the country, delaying the need for new sweaters or winter coats in the spring. And a steady stream of Black Friday deals, which started at many retailers in early November, has also slowed the rush, as some shoppers bet the best deals are still coming.
According to the market research firm, formerly called The NPD Group, early holiday sales have lagged despite many early promotions that coincided with Amazon’s Prime Deals event in October and Black Friday sales that started in November. Holiday shoppers spent 7% less in dollars and 6% less in units from mid-October to mid-November compared to the same period a year ago, Circana found.
“Consumers have been somewhat cautious,” Cohen said.
This slowdown in spending will put pressure on retailers for the rest of the season. It has led to retailers like Target pulling out all the stops to generate demand this year.
“You have to create momentum,” he said. “You have to create the sense of urgency, and you have to create the desire to buy.”
Barbie dolls (R) go on sale ahead of Black Friday at a Walmart Supercenter on November 14, 2023 in Burbank, California.
Mario Tama | Getty Images News | Getty Images
Black Friday mood
One of the biggest themes this holiday season: Shoppers are hungry for deals and are willing to wait for them.
In an interview with CNBC last week, Walmart Chief Financial Officer John David Rainey said customers hold out until they feel they can get the lowest price.
“We see consumers leaning heavily on events and promotional periods,” he said, adding that “some periods before and after those events or promotional periods are weaker.”
Walmart saw weaker sales in the last two weeks of October compared to the rest of the three-month period, a potentially worrying sign for consumer health, Rainey said. Still, he said sales started picking up again in early November when Walmart debuted its Black Friday deals.
Shoe company Steve Madden saw a similar dynamic. During an earnings call in early November, CEO Edward Rosenfeld said customers often only show up in large numbers when there’s a promotion.
“The shopping pattern is becoming more event-driven,” he said, adding that “the valleys in between have been a little bit deeper.”
He said the company hopes that as major shopping holidays like Black Friday and Cyber Monday kick off, “customers will really show up.”
Lowe’s And Best Buy I’ve also noticed a deal-hunting mentality. Both companies cut their full-year sales forecasts after weaker-than-expected third quarters.
Lowe’s CEO Marvin Ellison said consumers have postponed bigger projects and major purchases such as new refrigerators.
To combat that, Ellison said the home improvement retailer has introduced deep discounts on appliances and launched a new lowest price guarantee.
“Starting this week, we will have a continued series of great deals throughout the holiday season,” he said on a call with CNBC. “So there’s a lot of effort being made to create a little bit more urgency to get our customers to come in during the holidays.”
Discount levels at Best Buy are up from last year and are even higher than before the pandemic, CEO Corie Barry said during an earnings call with investors. She said the company expects a season marked by times when consumers think they can get the best prices.
“As we prepare for a highly deal-oriented customer, we expect shopping patterns to resemble historic holiday periods even more closely than last year, with customer shopping activity concentrated on Black Friday, Cyber Monday and the last two weeks of the holidays. December,” she said.
Shoppers at Bloomingdale’s stores and on the company’s website can browse a collection of purple suit jackets, sequin dresses, gourmet candies and even candy-themed cufflinks inspired by the movie “Wonka.”
Melissa Repko | CNBC
A little dazzle
In addition to promotions, retailers try to grab customers’ attention (and dollars) with special events, limited-time offers and eye-catching merchandise.
Some retailers, like Best Buy, are trying to get shoppers to hit the buy button by dangling short-term sales. The consumer electronics retailer debuted “Best Buy Drops,” flash sales events through its app that offer short-term price cuts on limited-edition items or popular product releases.
Goal, Ultimate beauty And LVMHSephora-owned Sephora has had “Deals of the Day” with popular brands or gift items discounted for 24 hours only.
Others have tried to attract shoppers with fun and free experiences, betting that this will put consumers in the mood to spend.
Macy’s has a special collection of Disney merchandise for the holidays. Customers can also try on Disney princess dresses virtually in a “magic mirror” at the company’s flagship store in New York City.
Macy’s
At the Macy’s flagship store in Herald Square in New York City, shoppers in Disney princess dresses can spin in an augmented reality-powered “magic mirror” before shopping a special collection of Disney jewelry, toys, clothing and more available online and in stores is available.
In mid-December, all Macy’s stores will host beauty-themed events with DJs, free makeovers and perfume bottle engraving. Throughout the stores, customers will find stations where they can create their own beauty gift sets.
With special events and seasonal displays, the department store wants to “bring the retail-tainment factor” and “create a little party on our floor,” said Chief Merchandising Officer Nata Dvir.
Macy’s higher-end department store, Bloomingdale’s, has a colorful collection of chocolates, candy-themed cufflinks, purple blazers, sequin dresses and more inspired by “Wonka,” the prequel debuting in December.
As Nordstrom sees slower traffic, the retailer is trying to attract shoppers with additional incentives and more convenient options, according to Chief Merchandising Officer Jamie Nordstrom. Holiday shoppers get extra reward points for beauty purchases. The company also just started rolling out free two-day shipping to all customers in more than twenty markets.
He said Nordstrom can differentiate itself with popular brands, superior customer service and faster shipping in a season that can be stressful.
“The faster we can get those goods to the customer, the easier their lives will be,” he said.
Across the industry, retailers are hoping that novelty and flash will encourage reluctant consumers to spend more than before.
Target is trying to emphasize convenience and newness this year, along with value. The company’s “Wonderland” pop-ups featured the chain’s top toys for the holidays. Kids could scan their favorites, which were then compiled into a wish list that parents could print or email to themselves.
Melissa Fleury, 27, of Brooklyn, brought her one-year-old daughter and four-year-old nephew to the event. Still, she says she hasn’t done much holiday shopping so far.
“I usually have half of my list done,” she said.
She said she has reduced her gift budget from $1,000 last year to a maximum of $800 this year. She keeps an eye on the best sales by exchanging tips with her aunt and sister. And she said she spends slowly, deliberately and only when she sees offers.
“The price has to be right,” she said.
– CNBC’s Robert Hum contributed to this report.