Investors caught in fight for holiday shoppers

‘The game has changed for retail players now’

NEW YORK, Nov 24, (RTRS): Investors would normally be thankful for a strong US economy, yet this holiday season they worry retailers may have to spend heavily to win, leaving shareholders with a lump of coal.

Steep discounts are as familiar a sight during the holidays as rich desserts, but this year so is a fierce grab for a slice of the e-commerce market as Amazon.com Inc and Target Corp offer free shipping for small purchases.

US shoppers formed long lines at checkout counters on “Black Friday” to take advantage of discounts on clothing and electronics, offering evidence that a healthy economy and rising wages are translating into stronger consumer spending at the start of retailers’ make-or-break holiday season.

Yet underwhelming earnings reports earlier this week from Target to department store Kohl’s Corp and home-improvement specialist Lowe’s Cos Inc reminded investors that US tariffs on imported goods, fickle consumer tastes and competition could eat away at profits this year.

Target shares fell 10 percent on Tuesday as the company said profit margins declined due to growing investments in boosting its online business, wage increases, price cuts and the higher cost of preparing and shipping orders. Target shares fell 2.7 percent on Friday.

“The retailers and e-commerce players are duking it out,” Shawn Kravetz, Esplanade Capital LLC’s chief investment officer, said at the Reuters Global Investment 2019 Outlook Summit in New York last week.

“Amazon is buying that (consumer retail) business. Other players are buying that business. So it’s a war.”

Kravetz, whose first job after earning an MBA in 1995 was at CML Group Inc, a company that sold NordicTrack exercise machines through catalogs and television advertisements, said “the old joke was that we gave away stuff for free to sell people shipping.”

The game has changed for retail players now, he said.

“They have almost no gross margin and they’re giving away shipping. It’s a tough gig. But if you’re Amazon – and you’re playing the long game – if you can only get another trillion dollars’ worth of revenue and then raise prices one percent the numbers can work.”