Lot At Stake For Target Corporation (TGT) In Upcoming Holiday Season
Holiday assumes importance for any retailers and Target Corporation (NYSE:TGT) is no exception to this. In the last four quarters, its earnings topped between 2.7% and 14.9% above expectations. The company has embarked on focusing itself on the online retail sales rather than being content with discount store format. The company operates mainly in the United States unlike its rivals that have global presence. Therefore, in a way, the company’s sales could provide some insight into the American spending pattern or the retailers’ sales model.
Big Part Of Annual Sales Come From Holiday Season
Everyone, be it investors or analysts, attach much importance to the holiday season. Retail companies like Target Corporation (NYSE:TGT) start preparing well in advance to meet the consumers demand. The economic trend or its strength provides some insight to the pattern of spending by the Americans and has become a crucial factor in deciding to have sufficient inventories before the season starts. Currently, October payroll data and jobless claims have given enough reason to be upbeat about the upcoming holiday season sales. The worldwide drop in oil price will also boost the spending of the consumers during the season. These factors should be of immense help to keep the growth rate slightly higher than most of its biggest rivals in the sector.
In a nutshell, Target Corporation (NYSE:TGT) is well placed to take advantage of the estimated season’s sales. National Retail Federation (NRF) predicts 3.7% growth in retail sales to $630.5 billion. That estimation excluded restaurant, gas, and auto sales. The projection is higher than the ten-year average growth pace of 2.5%. Also, about 19% of the current year’s retail sales are predicted to come from the holiday season. The forecast of the NRF also included the 6 – 8% growth estimated in online sales to $105 billion during the period. NRF Chief Economist, Jack Kleinhenz, said that though there were issues to be encountered, he expressed his confidence in solid retail sales growth.
Online Sales Key To Prove Its Stake
Of late, Target Corporation (NYSE:TGT) has taken a number steps to position itself as an online retailer. For that purpose, the company has offered free shipping on orders with a value of more than $25. That is a clear move to take on Amazon.com, Inc. (NASDAQ:AMZN) and its much talked about $35 free shipping agreement. The important factor here is that Target is not offering any subscription service like that of Amazon Prime with several freebies to attract subscribers. Even without that, the company showed its willingness to compete with the biggest online retailer.
The shortcoming for Target Corporation (NYSE:TGT) would come from the lack of sources to tap other sources of revenue. For instance, the company would not be in a position tap fuel sales while its rivals were operating filling stations. Also, the company has not floated any membership schemes to generate revenue. These were not dependent on holiday season but could prove to be a valuable one.
Factors To Bank On
NRF survey pointed out that nearly half of the shopping would be done online. The average consumer preferring to shop online has increased to 46% from 44% last year. That included both browsing, as well as, buying. The survey also accorded importance to free shipping or shipping promotions as 46.7% favored it. Spending on gift items would increase to $462.95 from $458.75 in the last year while average spending of a person would grow to $805.65 in the upcoming holiday season from $802.45.
While most of the large retailers have generated big revenues, Target Corporation (NYSE:TGT) was probably the only one to generate more than 2% growth in the current year. The other big retailers’ witnessed growth less than a percentage. The company is regarded as achieving the biggest operating margins in the retail sector by Citigroup Inc (NYSE:C) analyst, Kate McShane. The analyst pointed out the lack of warehouse club for remaining strong on operating margins. There is everything that is available for the retailer. It is now for the company to take on to fulfill the stakes.
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