c.2013 New York Times News Service

c.2013 New York Times News Service

Major retailers are bracing for a tough holiday season, reflected again this week in the gloomy third-quarter earnings issued on Thursday by Target and Sears.

Target’s earnings dropped 46 percent from a year ago, dragged down by a costly expansion in Canada and a bleak outlook for consumer spending in the United States. The company also lowered its forecast for the year.

“GDP continues to grow at a painfully slow pace, while household income and consumer spending remains constrained,” said Gregg Steinhafel, chief executive of Target. “In particular, lower- and middle-income households are shopping cautiously, as they work to stay within tight, very tight, household budgets, which have seen additional pressure from this year’s payroll tax increase.”

That budget-conscious mindset among core consumer bases for not only Target, but also Sears, Kmart and Wal-Mart is translating into a fierce competition for shoppers. Steinhafel said he expected the consumer to be “laser-focused on value.”

Many of the retailers are also competing with online giants like Amazon, which has announced a spate of deals in advance of “Black Friday” — the Friday after Thanksgiving Day and the traditional start of the holiday shopping season, though many retailers will open and offer deals on Thanksgiving Day itself.

Walmart.com began its holiday sale season Nov. 1. The company announced this week that it would match certain Black Friday offers from Target, Best Buy and Toys “R” Us, and start offering them this Friday.

The reduction of prices on desired items like electronics, televisions or appliances does not bode well for a struggling store like Best Buy, whose executives acknowledged that the season’s intensely competitive pricing on certain goods would probably be hurtful, even as it reported healthier earnings for the third quarter.

The holiday markdowns also come at a difficult time for Sears Holdings, which includes Sears and Kmart. Sears Holdings reported a $534 million loss, or $5.03 a share. Revenue at stores open at least a year, a crucial measure of a retailer’s health, fell 3.1 percent.

According to analysts surveyed by Thomson Reuters, the company was expected to lose $3.39 a share. They calculated that Sears reported a loss of $3.13 a share instead.

“They were slightly better than expected, but it was still a significant loss for Sears,” said Ken Perkins of Retail Metrics. “They’re not necessarily in free fall, but they’ve been on a steady down slope for some time at Sears, and we don’t see that trend turning around any time soon.”

In a statement, Sears’s chief executive, Edward S. Lampert, emphasized that the company was trying to shift from a standard retail model to a “member-centric” enterprise, focusing heavily on the loyalty program called Shop Your Way.

In addition to its own strategic and structural shifts, the company has trenchant economic issues to confront. Last month, Sears announced that it was considering spinning off the Lands’ End unit and its auto centers.

“They’ve been selling off some of their key assets, but there’s only so long you can sell off assets to keep the stock price up,” Perkins said. “Ultimately, you will end up running out of those assets and you’re left with the core retailing business.”

Wal-Mart, the country’s largest retailer, is fighting that same headwind. In a call with reporters last week, William S. Simon, the company’s chief executive, also pointed to stagnant income among its core customers and the payroll tax increase as lingering problems for shoppers heading into December.

Steinhafel of Target said on Thursday that consumer confidence also took a hit during the federal government shutdown in October and the company saw lower-than-expected sales of Halloween merchandise.

Kohl’s experience is similar, and even though J.C. Penney reported some signs of improvement, the company’s overall sales performance during the holiday season was being closely watched.

Among the meager glimmers of hope, Macy’s stood out a bit, beating analyst’s expectations last week after a disappointing second quarter.


For Target, excess inventory at its Canadian operations posed a particular challenge in the third quarter.

“In Canada, we’re nearing the end of our unprecedented market launch,” Steinhafel said, noting that the company would soon complete opening 124 Canadian stores in 2013. And with those openings behind it, he said, the company can focus on improving operations.

“While our initial sales and profits in Canada have not met our expectations, we remain enthusiastic about the Canadian market and confident in the long-term success of these stores,” he said.

The company reported a profit of $341 million, or 54 cents a share in the third quarter. That period included a dilution of 29 cents a share related to the Canadian segment. A year earlier, its profits were 96 cents a share.

From now through the holiday shopping season, Target and other retailers are vying to appeal to consumers with matching deals, competitive shipping rates and flash promotions, and everything is happening early.

Walmart.com announced that deals for Cyber Monday, the Monday after Thanksgiving, which used to signal the start of online shopping, will begin two days early, on Saturday. It also said it would offer free shipping for the holidays on orders of $35 or more — matching the figure offered by Amazon — beginning this Saturday.