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Retailers aim to win over consumer wallets this holiday season

·Markets Correspondent

Let the countdown begin. While Halloween festivities don’t kick off until this weekend, retailers around the country are already planning for holiday shopping, with Christmas a mere eight weeks away.

And Wall Street analysts are already starting to weigh in on how spending will shape up this holiday season, as they gauge if consumer spending habits reflect optimism amidst a broader worldwide slowdown.

While lower gas prices and continued job market improvement—the unemployment rate is down to 5.1% -- may aid purchasing power to some degree, many analysts say stagnant wages will limit consumer spending growth. In September, average hourly earnings fell by a penny from the prior month and rose only 2.2% from the prior year, an underwhelming number noted by Fed Chair Janet Yellen.

But Deutsche Bank’s Torsten Slock has a more optimistic outlook on spending. In a note Monday, Slock said he expects the holiday season to be strong for retailers, based on a Gallup survey from earlier this month, which showed that consumers intend to spend an average of $812 on gifts this holiday season, the highest level since 2007 at $909.

Slock says this data, combined with consumer confidence for lower-income groups nearing the highest levels ever, should translate to positive results for retailers, noting that stock market concerns such as a sharp slowdown in China and a potential government shutdown aren’t impacting consumer habits.

Recent commentary from FedEx (FDX) echoes this positivity. On Monday, the company said it expects to handle 317 million shipments between Black Friday and Christmas Eve, up over 12% from last year. And in its mid-September conference call, the company called out improved expectations for consumer demand, aided by an expectation for record volumes over the holiday season. The delivery giant noted it would be “adding more than 55,000 seasonal positions throughout the network that help the holidays arrive this year.”

However, initial feedback from retailers thus far give more mixed signals.

Just two weeks ago, Walmart (WMT) came out with a very weak earnings outlook, not only for 2016—where earnings are set to decrease 6 to 12%--but for the next three years. The nation’s largest retailer is completely resetting expectations following a sales slump at U.S. stores, as it tries to reposition itself amidst continued online competition from the likes of Amazon.

And while many of Walmart’s woes may be case-specific, Macy’s (M)—an important barometer of consumer behavior with 885 stores in 45 states—has also recently cited dampened demand. In its second-quarter earnings at the end of the summer, Macy’s called out “continued challenges with the consumer” and said it is “seeing customers gravitating to restaurants, recreational services, healthcare and electronics, rather than to traditional general merchandise, apparel, and furnishing categories.”

In fact, retail sales grew a mere 0.1% in September, as consumers pocketed any savings from lower fuel costs.

Even much-loved retailers like Under Armour, Skechers, and VF Corp—the parent company of Northface and Timberland—fell after their latest results.

“It’s been a difficult environment for the mall-based specialty and department store retailers,” according to Lorraine Hutchinson, an analyst at Bank of America, who highlighted “elevated levels of inventory” as particularly challenging for the sector.

A silver lining for consumers? Good deals.

Expect to see lots of promotions and sales, Hutchinson told Yahoo Finance. “Consumers are always looking for deals. The retailers with the most value and differentiated product offering are the ones that will win,” she said.

Yet while lowered spending at broadline retailers could stem to some degree from lowered consumer sentiment, some analysts have pointed to evolving purchasing behaviors. According to PricewaterhouseCooper’s 2015 Holiday Outlook, millennials are primed to spend on experiences and so-called selectionists (or shoppers with household incomes over $50,000 per year) will be focused on innovation, including entertainment and personal electronics.

Goldman Sachs last week highlighted in a research note that wallet share is shifting toward big-ticket items like autos and housing, and away from smaller discretionary items.