According to Moody’s Investors Service, some retailers saw their third-quarter retail margins expand, which should provide them with a cushion for the fourth quarter.
“Despite heavy promotions and food deflation, Wal-Mart, Target and Best Buy were able to pull off margin expansion in the third quarter, similar to Amazon, which has strengthened their positions heading into the fourth quarter,” the ratings agency said.
In a report from Moody’s — the credit team was led by senior credit officer Charles O’Shea — the three brick-and-mortar retailers posted third-quarter online sales growth in the 20 percent to 26 percent range, which the credit analysts believed will continue to grow throughout the holiday season and balance of the fourth quarter. Wal-Mart was 21 percent; Best Buy at 25 percent, and Target at 26 percent. “The propensity to offer the lion’s share of Thanksgiving holiday doorbusters — these aim to drive high-volume sales at big discounts — online as well as in the stores emphasizes that these retailers see the multichannel strategy as a critical part of their success,” Moody’s said.
The analysts noted that retailers must expand their cross-selling efforts to fight margin erosion. They explained that promotions continue to proliferate, and retailers in turn need to “expand the basket/cart” because selling low-margin doorbusters is “effectively a race to the bottom, which will have a crushing effect on margins.”
According to Moody’s, this holiday season is seen as “more compressed” than last year because of the lack of September 2015’s “Star Wars” blitz. And Amazon’s heavy early promotions beginning in late October were met by Wal-Mart, Target and Best Buy with “me too” discounts carrying into Cyber Week, the analysts noted.
Amazon ended the third-quarter discount war with margin growth due in part from its biggest sales day ever in July, they said. They also concluded that retailers, if they are serious about being multichannel in distribution, then “they need to be agnostic as to where the sale ultimately gets made.” They also concluded that Amazon is “uncatchable,” and that whomever comes in second will still be in a solid position.
“So far, this holiday season, the willingness of the brick-and-mortar retailers to ‘share’ their doorbusters with online customers is more pronounced than ever, which we take as a sign that they are truly focused on offering a multichannel experience to their customers.”
All four companies cited are “off to a very good start entering the final legs of the holiday selling season” and with the online spending levels exceeding 2015 comparables by a reasonable margin — the key factor being the level of mobile spend, which has had days exceeding $1 billion in sales — the analysts said they expect the focus and investment the industry is placing on mobile to continue.