Retailers use deals and events to drive sales

NEW YORK CITY — On a recent weekend in downtown Manhattan, a long line of families with strollers and small children lined up to step inside of Target’s “Wonderland”

Santa’s helpers handed out free cookies. Mario and Luigi from Nintendo’s “Super Mario” video game posed for photos. A toy train winded through a miniature village made from the retailer’s gingerbread kits. And children looked wide-eyed at some of the season’s hottest toys, including a large Barbie Dreamhouse.

Getting people to show up was one thing. Turning the event into a sale is another entirely.

Target’s pop-up event, which will travel to Dallas and Los Angeles, captures the lengths that retailers are going to this holiday season to try to motivate shoppers to open their wallets. Caution and uncertainty has colored the outlook for the peak shopping season as inflation, higher interest rates, the return of student loan payments and consumers’ emphasis on experiences take a bite out of shoppers’ budgets for gifts and decor.

Holiday spending is expected to grow at a more modest rate than in recent years, as customers seek out deals. Holiday-related sales in November and December are expected to rise by 3% to 4% year over year, according to the National Retail Federation. That’s a sharp drop from the pandemic years, but about in line with the pre-pandemic growth average of 3.6%.

Over the past two weeks, many retailers, including Walmart, Nordstrom and Target have said shoppers have made fewer store trips, postponed big purchases or held out for better deals. This week, Lowe’s, Best Buy and Kohl’s all cut their sales forecasts. Even some retailers that raised their outlooks, such as Dick’s Sporting Goods, referred to dynamics outside of their control that could dampen spending.

Marshal Cohen, chief industry advisor for market research firm Circana, said this year will bring a “complex Christmas” for retailers.

The average credit card balance is at a 10-year high. Fall weather was unseasonably warm in many parts of the country, delaying the need to spring for new sweaters or winter coats. And a steady drip of Black Friday deals, started early in November at many retailers, has also delayed the rush, as some shoppers bet that the best deals are still coming.

Early holiday sales have lagged, despite many early promotions that coincided with Amazon’s Prime deals event in October and Black Friday sales beginning in November, according to the market research firm, which was formerly called The NPD Group. Holiday shoppers spent 7% less in dollars and 6% less in units from mid-October to mid-November compared with the year-ago period, Circana found.

“Consumers have kind of held back,” Cohen said.

That delay in spending puts pressure on retailers for the rest of the season. It has led retailers like Target to pull out all the stops this year generate demand.

“You’ve got to create impulse, ” he said. “You’ve got to create the sense of urgency, and you’ve got to create the desire to buy.”

Among the biggest themes this holiday season: shoppers are hungry for deals and willing to wait for them.

In an interview with CNBC last week, Walmart Chief Financial Officer John David Rainey said customers are holding out until they feel like they can nab the lowest price.

“We are seeing that consumers are leaning heavily into events, promotional type periods,” he said, adding that “some of the periods before and after those events or promotional periods are weaker.”

Walmart saw weaker sales in the last two weeks of October compared to the rest of the three-month period, a potentially worrying sign about consumer health, Rainey said. Yet he said sales began to pick up again in early November as Walmart debuted its Black Friday deals.

Footwear company Steve Madden saw a similar dynamic. On an earnings call in early November, CEO Edward Rosenfeld said customers are often showing up in a big way only when there’s a promotion.

“The shopping pattern is becoming more and more event driven,” he said, adding that “in between, the valleys have been a little deeper.”

He said the company hopes that as key shopping holidays such as Black Friday and Cyber Monday kick in, that “customers will really show up.”

Lowe’s and Best Buy have noticed a deal-hunting mentality, too. Both companies cut their full-year sales forecasts after weaker-than-expected fiscal third quarters.

Lowe’s CEO Marvin Ellison said shoppers have postponed bigger projects and major purchases, such as new refrigerators.

To counteract that, Ellison said the home improvement retailer has rolled out deep discounts on appliances and launched a new lowest price guarantee.

“We’re going to have a sustained drumbeat of great offers for the entire holiday season, starting this week,” he said on a call with CNBC. “So there are lots of efforts going into creating a little bit more urgency around getting our customers to come in for the holiday season.”

Discounting levels at Best Buy have increased from last year and are even higher than before the pandemic, CEO Corie Barry said on an earnings call with investors. She said the company anticipates a season punctuated by moments when shoppers believe they can get the best prices.

“Since we are preparing for a customer who is very deal focused, we expect shopping patterns will look even more similar to historical holiday periods than they did last year with customers shopping activity concentrated on Black Friday week, Cyber Monday and the last two weeks of December,” she said.

Along with deals, retailers are trying to grab customers’ attention — and dollars — with special events, limited-time offers and eye-catching merchandise.

Some retailers, such as Best Buy, are trying to rush shoppers to hit the “buy” button by dangling short-term sales. The consumer electronics retailer debuted “Best Buy Drops,” flash sales events through its app that feature short-term price cuts on limited edition items or popular product releases.

Target, Ulta Beauty and LVMH-owned Sephora have had “Deals of the Day” with popular brands or gift items that are only discounted for 24 hours.

Others have tried to attract shoppers with fun and free experiences, as they bet that will put consumers in the frame of mind to spend.

At Macy’s flagship store in New York City’s Herald Square, shoppers can twirl in Disney princess dresses in an augmented reality-powered “magic mirror” before shopping a special collection of Disney jewelry, toys, apparel and more that’s available online and across its stores.

In mid-December, all Macy’s stores will host beauty-themed events with DJs, free makeovers and fragrance bottle engraving. At all stores, customers will find stations where they can create their own beauty gift sets.

With special events and seasonal displays, the department store wants to “bring the retail-tainment factor” and “create a little bit of a party on our floor,” Chief Merchandising Officer Nata Dvir said.

Macy’s higher-end department store, Bloomingdale’s, is carrying a colorful collection of chocolates, candy-themed cuff links, purple blazers, sequin dresses and more inspired by “Wonka,” the prequel movie that debuts in December.

As Nordstrom sees slower traffic, the retailer is trying to draw shoppers with extra incentives and more convenient options, Chief Merchandising Officer Jamie Nordstrom said. Holiday shoppers get extra rewards points on beauty purchases. The company also just began rolling out free two-day shipping to all customers in more than 20 markets.

He said Nordstrom can stand out with popular brands, superior customer service and quicker shipping in a season that can be stressful.

“The faster we can get that merchandise to the customer, the easier their life is going to be,” he said.

Across the industry, retailers hope novelty and flash will get reluctant consumers to spend more than they have been.

Target is trying to emphasize convenience and newness this year, along with value. The company’s “Wonderland” pop-ups showed off the chain’s top toys for the holiday season. Kids could scan their favorites, which got compiled into a shoppable wish list parents could print off or email to themselves.

Melissa Fleury, 27, of Brooklyn brought her one-year-old daughter and four-year-old nephew to the event. Yet so far, she said she hasn’t done much holiday shopping.

“Usually, I have half of my list done,” she said.

She said she has trimmed her budget for gifts from $1,000 last year to a maximum of $800 this year. She has kept tabs on the best sales by swapping tips with her aunt and sister. And she said she is spending slowly, deliberately and only when she spots deals.

“The price has to be right,” she said.

— CNBC’s Robert Hum contributed to this report.

For more on Black Friday sales, check out NBC Select’s recent roundup of the best Black Friday deals.