Analyzing 2013 Outlook For The Holiday Season Winners

Madhukar is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

According to the Forrester's research, the US online retail market shall grow at a CAGR of ~10% over the next 2-3 years. Benefitting form this growth are three retail stocks that have performed well during the last holiday season. In 2013, investors can expect strong growth in online sales as well as other multi-channel retail platforms. Let's discuss each of these stocks in detail. 

<table> <tbody> <tr> <td> <p><strong>Companies</strong></p> </td> <td> <p><strong>Stock Growth in last 1 year (~)</strong></p> </td> </tr> <tr> <td> <p><strong>Wal-Mart <span class="ticker" data-id="206096">(NYSE: <a href="">WMT</a>)</span><br /></strong></p> </td> <td> <p>12.50%</p> </td> </tr> <tr> <td> <p><strong>Target <span class="ticker" data-id="205706">(NYSE: <a href="">TGT</a>)</span><br /></strong></p> </td> <td> <p>17.00%</p> </td> </tr> <tr> <td> <p><strong>The <span>TJX</span> Companies <span class="ticker" data-id="205761">(NYSE: <a href="">TJX</a>)</span></strong> )</p> </td> <td> <p>32.00%</p> </td> </tr> </tbody> </table>

Source: Yahoo Finance


The company is an all time winner with its perfect pricing and assortment leadership. Wal-Mart shall continue to grab a significant market share with the company’s much talked about Layaway program. Its Layaway program which started in September allows its customers to hold the items they intend to buy and make payment in installments over time. And to further make it more attractive, Wal-Mart has reduced its fee to $5 which was $15 earlier. The company had $400 million in the United States Layaway sales in less than a month and I estimate that it would have made $600 million till now. Wal-Mart in the Holiday season doubled its order for Apple iPad and other tablets than last year to meet the customers’ needs. Its marketing initiatives for the Holiday Season worked out well as per the plans and brought in the largest traffic inside Wal-Mart’s stores. The company served almost 22 million customers on Thanksgiving Day and processed about 5,000 items per second.

Wal-Mart’s online business also keeps its hopes high as its new Polaris search engine for its website has shown positive results and increased the conversion rate by 10% to 15%. With the expanded online assortment, Wal-Mart has also started its same day delivery for its online orders in four major cities. The company is expecting online sales of ~$9 billion for the next fiscal year. 


The company's partnership with Nieman Marcus for the Holiday Season didn't worked out well as the sales figure didn't match up the expectations. The marketing efforts were not as aggressive as it made last year with Missoni. Moreover the number of items was also less which was only 60 as compared to 400 last year. Looking at this decline, Target announced a 50% discount that lasted till December end to lift up the sales. The company has some aggressive expansion plans to boost its market share. It is expanding its footprint in Canada and putting a dent in the local retailers’ revenue where it has planned to open up to 130 new stores in 2013 with expected revenue of ~$2.2 billion. This will further be increased to ~150 stores in 2017 with ~$6.6 billion in revenue.

Talking about another strong fundamental, the company’s Red Card Loyalty program is gaining momentum. This program aims at providing 5% discount to its customers on all the products with 120 days of return policy compared to the non Red card holders which is 90 days. This program has started showing its bright colors as the customers who hold this card spend 50% more than the customer's who don't own it. This card enhanced the spending to 14% in 2012 as compared to 9.5% in 2011.

The TJX Companies

TJX is relatively small when compared to the above big giants. The Holiday season was a time where all the retailers offered their best deals to their customers to increase traffic. However, when it comes to TJX I don't find it making any aggressive strategy initiatives. The company rather remained confident with it’s off price strategy and by offering fresh merchandise. The December sales figure that increased ~10% y/y to $3.6 billion proved that the company can meet its target without adopting any aggressive promotional strategies.

In the 3Q12, Europe and Canada remained TJX's revenue generating markets with 2% increase in comps in Canada and an 11% increase in Europe. With a great growth in the brick and mortar business TJX is now trying its hand in the online business where it recently acquired Sierra Trading Post, for $200 million. This acquisition will offer TJX the required capabilities and infrastructure in the off price e-commerce business with a knowledgeable management team. Sierra's retailing experts will be a complement to the TJX e-commerce team which the company has prepared from so long. TJX has proved that it has potential to challenge the big giants on all these aspects.


To close, I feel that the future for all these three retailers bodes well in the coming time as compared to their competitors. Wal-Mart is in a win-win situation and shall see increased traffic with its loyal middle-income group. On the other hand,  Target that saw a failure in its partnership keeps its hope up with its Red Card Loyalty program. TJX also keeps me confident for the future growth with its off price model. 

madhudube has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus