Will Retailers Strike It Rich This Holiday Season?

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The holiday season is right around the corner, and retailers are bracing up for this year's race with new strategies to attract traffic. The technology-driven market has opened up numerous avenues to engage consumers, with different offers to lure them to convenient purchases outside regular store hours.

While this evolution poses some risks, it has also offered retailers a bundle of new opportunities to emerge as winners this holiday season. Some of the strategies adopted by these hawked-eye retailers include early store openings, extended holiday deals to tempt customers to shop ahead of the traditional Black Friday and Cyber Monday weeks, free shipping for online shopping, price matching and many more.

Among the retailers that have already kicked off with their holiday offerings are Target Corp. ( TGT ) and Wal-Mart Stores Inc. ( WMT ). Also, Inc. ( AMZN ) has begun its Black Friday Early Countdown which features lightning deals for its prime members.

Data compiled by eMarketer suggests a 5.7% jump in holiday sales (November and December) to $885.7 billion against 3.2% growth projected earlier. Retail E-commerce holiday season sales are anticipated to increase 13.9%, and represent approximately 9% of total sales this season (or $79.4 billion), up from 8.3% last year.

Data compiled by the nation's largest retail trade group, National Retail Federation (NRF), projects a 3.7% sales jump for the period to $630.5 billion, shy of 4.1% growth registered last year but better than the 10-year average sales increment of 2.5%. Online sales for the season are expected to increase 6-8% to approximately $105 billion.

Long-Term Trends that Rule the Sector

With the increasing influence of technology on the buying patterns of consumers, the general retail sector trends set to rule for about the next five years are jotted below:

Omni-channel Retailing: The growth of various shopping means has given rise to the "omni-channel" approach, which focuses on providing more touch points and multiple channels to customers. This approach facilitates the use of all possible media to engage consumers, including brick and mortar stores, online and mobile at the same time or alternatively. This strategy provides customers the ease to select, purchase and exchange a product through multiple channels.

For example, a customer may select a product online, buy it through phone and exchange the same at a store without any hassle. Some retailers who are already benefiting from this strategy are Staples Inc. ( SPLS ), Macy's Inc. ( M ), Nordstrom Inc. ( JWN ) and Chico's FAS Inc. ( CHS ).

Personalized In-Store Experience: With evolution to the .com era and advancement of consumers, retailers are reinventing their marketing styles, gradually shifting from the mass advertising and promotion format to a more personalized method to impress today's omni-channel customers. Modern-day consumers prefer more direct communication, like interacting with an executive through their smartphone app or chatting with them on the company's website. They also look for tailored online as well as in-store offers and recommendations.

Increasing Use of Mobile Wallet Technology: With everything in retail undergoing a sea change, the modes of payment used when shopping have also evolved dramatically. Increasing use of smartphones, tablets and mobile technology has given rise to a new mobile application called 'mobile wallet,' through which customers can make payments instantly using their smartphones or tablets. Though cash and credit cards remain the primary payment methods, the use of mobile wallet is catching up quickly because of its convenience.

The popularity of this particular app among customers is driving retailers to adapt this payment mode by collaborating with some of the mobile wallet providers available in the market like PayPal, Google Wallet, Square Wallet, Dwolla and more.

A quick recall of one such collaboration is the fusion of leading car rental company Avis Budget Group Inc.'s ( CAR ) express rental service "Avis Preferred" with the Google Wallet application. Moreover, the PayPal app has gained recognition with a wide array of retailers, including Abercrombie & Fitch Co. ( ANF ), Advance Auto Parts Inc. ( AAP ), Aeropostale Inc. ( ARO ), American Eagle Outfitters Inc. ( AEO ), Barnes & Noble Inc. ( BKS ), Foot Locker Inc. ( FL ), Guitar Center, Jamba Inc.'s ( JMBA ) Jamba Juice, J.C. Penney Company Inc. ( JCP ), Nine West, Office Depot Inc. ( ODP ), Rooms To Go, Tiger Direct and Toys "R" Us.

Technology-Friendly Brick & Mortar Stores: With shoppers increasingly becoming tech savvy, the brick and mortar stores need to leave their old-fashioned layouts behind and improvise by adopting innovative in-store technologies. The simplest way to execute this is through in-store mobile devices, through which customers can make payments, see product demonstrations, gather information and connect to social networks.

Further, retailers are exploring new ways to use mobile devices in store. As a result, they intend to develop mobile apps that will track customers as they shop and send them tailored offers on products of section they are in; recommend items based on past purchases; or allow them to program automated shopping lists.

In-store technologies, that customers look for these days include mobile point of sales, price checkers, self-checkout payment lanes, information kiosks, digital signage, etc. Other innovative technologies to engage customers both in-store and elsewhere are smart shelves, Wi-Fi hot spots, point-of-sales (POS) systems, virtual storefronts and endless aisles.

Reinvention of Loyalty Programs: With perpetual changes in the industry trends, retailers are now perking up their loyalty programs by replacing loyalty cards with customized offers based on social conduct and behavioral patterns of shoppers, frequently bought items and other such details. Retailers with deep focus on enhancing rewards on their loyalty schemes are Nordstrom, Rite Aid Corp. (RAD) and Office Depot to name a few.

Another method that retailers have recently started adopting to draw consumers involves going beyond purchases to reward consumers for their transactions and engagement. For instance, Walgreens Boots Alliance Inc. ( WBA ) allows its customers to earn points for every health-related activity they engage in, including walking, weight tracking, and so on. Also, DICK'S Sporting Goods Inc. ( DKS ) recently introduced the "Move" feature to its mobile app, which allows customers to connect to fitness tracking applications like MapMyRun and Fitbit to earn DICK'S ScoreCard points for attaining their activity goals.

Impact of Social Media on Shopping Decisions: With the growing use of social networking sites by the masses, business firms have also taking to social media for promoting their business. Over the past several years, retailers have used social media platforms to advertise their brands, launch products and campaigns, talk to customers and even make merchandising decisions. The companies are now looking for opportunities to also sell their products through social media.

In accordance with this, social networking sites, like Facebook, Instagram and Twitter, are adding shopping functionalities to their sites. Some of the retailers that have already adopted this platform are Nordstrom and Target, which are using the Like2Buy platform on Instagram, and The Home Depot Inc. ( HD ), (RED) and Burberry, which are testing Twitter's buy button.

Investing in Big Data to Track Shoppers: With the growing need for giving personal attention to shoppers, retailers are widely investing in analysis software like "Big Data" that help accumulate information on behavioral patterns, history and background of customers. Analysis of such data helps to predict customer reaction, formulate pricing strategies, offer shopper-specific discounts and provide personalized recommendations to shoppers.

Some of the data analytics tools that will be adopted in 2015 include Swarm, which will enable stores to analyze foot traffic, thereby helping to make better decisions and tailor customer interactions, and Collect, which will track the spending habits of the top customers and provide them personalized rewards and offers.

Taking Charge of Its Value Chain: The mantra to success in modern retail is to provide a compelling shopping experience to customers, which is only possible by taking full control of one's value chain i.e., from creation of products to their consumption. Some of the retailers that have proved themselves in this area are Apple, Ralph Lauren Corp. ( RL ) and Trade Joe's. We expect the importance of this strategy to grow, with retailers focusing more on fulfillment practices, product distribution, speed and convenience of delivering products to consumers, and more.

Growth of Retail in Emerging Markets: Having tapped most of the potential in the domestic market, retailers have started venturing into emerging markets. Most retail chains are witnessing growing demand for their products in countries like Brazil, the Middle East, China and India and aims at growing their exposure in these countries over time. Retailers planning to venture into these markets include the likes of The Gap Inc. ( GPS ), The Clorox Company ( CLX ), Ralph Lauren, V.F. Corp. ( VFC ) and Tiffany & Co. ( TIF ).

Localization of Products Mix and Store Formats to Win: Localization requires tailoring of products and stores to satisfy the needs of local communities. This trait is expected to prove the most beneficial this year as customization is likely to attract more customers. One example of such a retailer that tailors its merchandise for respective stores is O'Reilly Automotive Inc. ( ORLY ).

Others following this trait are retailers like Starbucks Corp. ( SBUX ), Target and Chipotle Mexican Grill Inc. ( CMG ). These retailers have deviated from their usual store formats and established smaller "express" stores to tap the potential of the urban markets.

Bottom Line

Retailers are trying to remain competitive primarily by shifting their focus toward the long-term horizon and finding innovative solutions to create value, reduce operating costs and mitigate risks throughout the enterprise.

Right-sizing inventories, enhancing efficiency and competence while bringing in technological advancements are the key agendas adopted by retailers. Moreover, cost-containment efforts and merchandise initiatives to improve margins are the top priorities.

Retail, owing to its huge spectrum, remains a lucrative investment avenue for investors. The sector reflects the trend of consumer spending trend - an important parameter to gauge the health of the economy. Hence, identifying future winners from this sector and investing in them can be a good decision.

As you can see, there are plenty of reasons to be optimistic about the retail industry over the long term. But what about investing in the space right now?

Check out our latest Retail Industry Outlook here for more on the current state of affairs in this market from an earnings perspective, and how the trend is looking for this important sector of the economy now.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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