Every four years, the holiday season is a little more challenging for retailers as consumers get distracted by the selection of the next U.S. president. This election cycle was no different, but the disruption is lingering. Making matters worse, shoppers were already under a time crunch due to this year's late Thanksgiving. Put them together with some unusually warm weather, and retailers face an especially tough slog this year. The setup leaves Black Friday as a make-or-break event that will help draw distinct lines between the season's winners and losers. Pent-up demand Industry analysts suspect there is pent-up demand, and if consumers perceive a good bargain, they have the means to shop. Citigroup analyst Paul Lejuez expects consumers will spend an average of 13% more this holiday season based on the findings of the bank's consumer survey. The poll, conducted Nov. 5-12, found 42% of 2,800 adults questioned planned to spend more on gifts this year. Twenty-two percent expect to spend less, Lejuez said. However, the retail industry trade group the National Retail Federation predicted in October that sales would rise between 2.5% and 3.5% in November and December from the same period in 2023. That would be the weakest year-over-year growth since 2019. JPMorgan's expectations of 3% growth are in-line with that somber view. "Consumer wallets remain constrained, macro/geopolitical uncertainty persists and the shorter holiday season (five fewer days and Christmas on a Wednesday)," will weigh on spending, analyst Christopher Horvers said. Family-oriented retailers will struggle with these conditions, as they benefit from shoppers browsing for gifts, Horvers expects. Target , Dick's Sporting Goods and Academy Sports and Outdoors are examples. Shares of Target and Academy Sports are down more than 12% and 29%, respectively, year to date, but shares of Dick's Sporting Goods are up 43%. TGT 3M mountain Target shares over the past three months. Horvers thinks Walmart is in a good position partly because of its improved online offerings, which will help time-pressed shoppers check off their gift lists. Shares in the nation's largest retailer hit an all-time high on Friday and are up 72% this year. The vast majority of analysts give Walmart the equivalent of a buy rating, according to FactSet. Based on the average price target, Wall Street sees about 9% upside from current levels. The diverging fortunes of the two largest discounters were underscored by earnings reports last week. Target's numbers were deeply disappointing . Despite the Minneapolis-based chain's efforts to bring down prices, it is losing market share to rivals, including Walmart. For its part, Walmart once again told investors that sales in the year ending next Jan. 31 will exceed earlier forecasts. It has been winning over higher income consumers with new product lines, while still holding on to its core low-income consumers, who trust they will get the most bang for the buck at Walmart stores. Still, both retailers highlighted some of the same trends on their earnings calls. Notably, they said there has been a concentration of shopping around big events. That's one reason Black Friday and Cyber Monday will be so vita this year. Grabbing attention Another is that these events are a strong signal that it's time for consumers to hit the stores. Lately, shoppers have been lethargic. According to data tracker Circana , November started off with back-to-back 9% declines in weekly retail sales. "These early November declines marked the weakest general merchandise sales performance in the last 52 weeks and spanned almost the full list of industries tracked, " Circana said in an email. Retailers are up against a number of headwinds. Temperatures have been unseasonably warm in much of the country, which means fewer shoppers are in the market for cozy sweaters, winter jackets and boots. And they also feel the holiday spirit less if temperatures are above their seasonal norms. Companies are doing their best to coax customers to their aisles. Promotions started early and are coming fast and furious. Some have been taking the bait and scooping up items, afraid that they'll miss out if they wait, according to Circana. Others are happier to bide their time, betting that the deals will be sweeter later in the season. Either way, the steady flood of promotions is its own distraction, said Marshal Cohen , chief retail industry advisor for Circana. "The competition for the consumer's attention keeps expanding," Cohen said. "Toys now compete with beauty, tangible gifts compete with experiences, and top shopping days compete with other activities, like football on Black Friday. Not only do marketers need to break through the distraction and capture consumers' attention with the best deals, but they also need to convince them of the value they are getting, and then hold to it." Sensormatic Solutions, which tracks foot traffic at stores, is predicting that Black Friday will be the busiest shopping day this holiday season, but also expects a lot of last-minute shopping this year. Morgan Stanley analyst Alex Straton said there's a risk that retailers could see the extra sweaters and boots lingering on their racks as a sign to cut prices deeper than planned. Last year, many retailers didn't flinch under similar circumstances and many still wound up having a successful season. "Given much of holiday is ahead, it's not impossible that Retailers adopt the same approach as [last year] i.e., holding out on raising promotions in the hopes that better demand will materialize later on, as it did in December" last year, Straton wrote in a research note Friday. Within Morgan Stanley's coverage universe, companies such as Nike , Skechers , Tapestry and Under Armor have warned of elevated inventory during recent earnings calls, and are worth watching for reactions, Straton said. HD YTD mountain Home Depot shares year to date Citi's consumer survey found that more people expect to wait to do their shopping until December this year than last year. The bank also asked where people planned to spend more money this year, and those polled cited pet care, athletic apparel and jewelry and watches as their top categories. With all the mixed signals, JPMorgan's Horvers reminded his clients in report on Friday that it might be wise to avoid some of the retailers that have the most at stake during the holidays, such as Best Buy or Dick's. Instead, he noted that, historically, Home Depot and Lowe's have outperformed other stocks in his coverage area in November and December, with gains of 4% or more each month. Analysts are mixed on Home Depot shares, with 64% rating them the equivalent of a buy, according to FactSet. The average price target of $420 implies the stock could rise 3% from current levels. Wall Street also has doubts about Lowe's shares, with 53% saying they're worth buying and the consensus price target of $265 implying about 7% upside from Friday's close. "Overlaying stock seasonality ... home improvement and auto parts are the safest places to hide in our view," said Horvers, who rates both Home Depot and Lowe's overweight.
