By Sinéad Carew
(Reuters) -As investors monitor crowd sizes at stores on Black Friday they will be shopping for a different kind of holiday deal: retailers that do well in a mixed economy characterized by high prices and limited shopping budgets.
Along with retail powerhouse Walmart, off-price retailers such as TJX and Ross Stores are expected to draw some bargain hunters away from department stores like Macy’s and Kohls. Higher-end retailers like Ralph Lauren and Tapestry are expected to attract big-spenders but that is already reflected in their shares.
Walmart is up about 21% year-to-date, while Ralph Lauren is up around 61% and Tapestry is up about 70%.
Investors and analysts still watch store traffic for clues on consumer sentiment and preferences even though an increasing number of shoppers opt to order online from the couch, which has boosted Amazon.com and Walmart hugely in recent years.
Amid persistent inflation and a slowing labor market, investors expect cautious spending from low- and middle-income households, while well-off consumers who have benefited from 2025’s stock market gains will pick up some of the spending slack.
“Whenever you have a bifurcated economy where some people are doing really well and others are not but everybody wants to spend, that just raises the stakes for all the retailers,” said Kim Forrest, chief investment officer at Bokeh Capital Partners.
She saw “stressed” shoppers before Thanksgiving at Walmart, which was “bending their pricing to allow people to buy what they need” with a 10- and 5-pound potato sacks and a variety of turkey sizes.
Forrest said Walmart’s “eye-catching displays,” like a set Thanksgiving table marketing home goods or a decorated crib in the baby section, compared favorably to Target. While, in the past, Target store displays convinced shoppers to buy unplanned items, Forrest said they have “lost their merchandising mojo.”
Last week, Walmart increased annual forecasts for the second time this year. Target reported a bigger-than-expected drop in quarterly same-store sales as consumers pulled back spending on apparel and home decor.
“If you’re careful with your money you’re going to want the most bang for your buck. You’re going to go to the store where you think you could get that. You’re not going to go to a humdrum kind of shopping experience,” said Forrest.
She expects stronger sales for TJX – owner of TJMaxx and HomeGoods – than at Macy’s and Kohls. Kohl’s shares rallied 42.5% on Tuesday when it projected a smaller drop in sales and bigger profit for the year ahead. However, the company has reported same-store sales declines in the last 11 quarters.
LOW VALUATIONS FOR SOME RETAILERS
David Swartz, senior analyst covering retailers at Morningstar, said investors have shown a preference in recent years for Ross Stores and TJX over Macy’s and Kohl’s, which have been “hit hard by competition from the clearance off-price stores as well as Amazon and Walmart.”
And going more upmarket, Swartz sees Ralph Lauren, Ulta Beauty, and Tapestry doing well this season, but warned that increasing their already-rich valuations could be risky.
In contrast, Nike and LuLulemon Athletica have underperformed in recent years. While “they may not necessarily report great holiday periods,” Swartz points to low valuations, so “if things do get better, you could see the stocks go up quite a lot.”
He noted that some retailers kick off sales as early as October and some deepen discounts closer to Christmas or in the New Year, while some consumers buy all their gifts online.
“You can’t judge the whole season’s sales just based on one day,” said Swartz.
Bokeh’s Forrest sees VF Corp, whose shares are down about 19% year-to-date, as a potential turnaround story while Urban Outfitters’ namesake stores have not been doing as well as its Anthropologie chain.
With many consumers under pressure, Hardika Singh, economic strategist at Fundstrat, will watch spending levels among higher-income shoppers.
“If their spending falters, then we would have some trouble in the economy, she said.
(Reporting by Sinead Carew, Siddharth Cavale; Editing by Alden Bentley and Nick Zieminski)
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