During the holiday shopping season, the front-runners are gaining a clear advantage over their competitors.

• Sales growth disparities among retail brands over the past two weeks have been highlighted in their earnings reports.
• Although Kohl's, Target, and Best Buy reported disappointing results in their most recent quarters, Dick's Sporting Goods, Walmart, and Abercrombie & Fitch experienced strong sales.
• Due to having less money, shoppers are eliminating weaker retailers, according to Neil Saunders, managing director of GlobalData Retail.

During the holiday season, retailers have the chance to entice even the pickiest shoppers and persuade them to spend on non-essential items such as party attire, cosmetics, or toys.

But the free-spending season isn't lifting sales for everyone.

Sales growth disparities among retail brands over the past two weeks have been highlighted in their earnings reports.

While each of the companies reported disappointing third-quarter results due to the failure of early holiday deals to significantly increase their businesses, on the other hand, both and experienced strong sales in their most recent quarters.

Despite a decrease in inflation, shoppers have continued to be selective with their spending due to the lingering effects of the more-than-two-year stretch of inflation in the U.S. As a result, retailers have had to work harder to entice customers to spend more.

Retailers are facing a wider gap between success and failure during the holiday shopping season due to the selective shopping habits of consumers, according to Neil Saunders, managing director of GlobalData Retail.

"Although people are still spending, they may not have as much money to spend as before. As a result, they might be purchasing fewer items. In this scenario, it's easy to say, 'Where can I cut back on buying things?' And they will eliminate weak retailers."

Setting expectations

According to the National Retail Federation, holiday spending in November and December is predicted to increase by 2.5% to 3.5% compared to 2023, totaling between $979.5 billion and $989 billion. This is a smaller year-over-year increase than the 3.9% jump from the 2022 to 2023 holiday season, when spending reached $955.6 billion. The NRF's estimate does not include spending at automobile dealers, gasoline stations, and restaurants.

This week, both Abercrombie and Dick's raised their full-year forecasts and predicted a robust holiday shopping season. Despite this, retailers' predictions for the holiday quarter have been all over the map.

Abercrombie's Chief Operating Officer Scott Lipesky stated on the company's earnings call that they have experienced a robust initial reaction to their holiday collections and are eagerly anticipating the peak selling season to intensify this week.

and struck a more cautious note.

Despite beating Wall Street's third-quarter sales expectations, Nordstrom's CEO, Erik Nordstrom, announced a muted guidance adjustment on the company's earnings call. This was due to slower shopping trends observed at the end of October, which were factored into the company's sales forecast.

John David Rainey, Walmart's Chief Financial Officer, stated on CNBC that the holiday season is progressing positively, but customers are still cautious with their spending and are holding off on making purchases until better deals become available.

Despite declining sales of general merchandise for 11 consecutive quarters, Walmart's sales of general merchandise rose year over year in the second quarter of the current year.

According to Rainey, the swing in sales likely results from both the easing of inflationary pressures on families due to lower food prices and the company's ability to sell more discretionary items through its website by adding more products through third-party marketplaces.

Kohl's CEO change and sales drop forecast were announced ahead of the crucial shopping season.

Target anticipates that sales in the holiday quarter will remain relatively stable, taking into account both online and in-store sales.

Despite its lackluster forecast, Target is making efforts to attract customers and increase sales. During an earnings call last week, Chief Commercial Officer Rick Gomez announced that Target would carry over 150 items inspired by Universal's "Wicked" movie, including clothing, food, beauty items, and toys. Additionally, Target will release an exclusive vinyl and book for Taylor Swift fans on Black Friday.

To boost sales during the holiday season, Target will lower prices on an additional 2,000 items, following in the footsteps of a successful retail strategy it employed earlier this year by reducing prices on 5,000 items.

Wants and needs

According to GlobalData's Saunders, department stores such as Target, Kohl's, and Macy's are facing a more challenging holiday season because they primarily sell wants rather than needs.

This year, customers are leaning more towards experiences and are looking for gift items that offer practical value.

""People are cutting back on meaningless purchases such as little games, novelty socks, and other things because they want gifts to be useful and relevant, even if it's just for a gift," he said."

Some companies may have purchased excess inventory or the wrong assortment of products before the shopping season. At Kohl's, Saunders stated that they have displayed a lot of clothing and small appliances like coffeemakers and airfryers in preparation for Black Friday. If shoppers do not purchase these items in large quantities, they may end up on the clearance rack.

"He said, 'I'm just looking at it and thinking, "Is this going to sell through?"' because you're not getting the foot traffic into stores already. So why is that going to change over Black Friday?"

Circana's chief retail advisor, Marshal Cohen, stated that the successful approach this holiday season will be offering value, not just through lower prices, but by providing the perception of "the best bang for the buck" with unique or high-quality items.

Retailers are already preparing to blame external factors for their underperformance during the holiday season.

"Cohen stated that retailers consistently have a reason not to meet their targets, which they use to justify their performance. They cite factors such as weather, dock strikes, and supply chain issues as reasons for their struggles. However, Cohen believes that these explanations are actually a way for retailers to hedge their bets and prepare for potential challenges ahead."

"I often say, 'Here's the excuse for this year. What is it?'"

NBCUniversal, a subsidiary of Comcast, distributed the film 'Wicked.'

— CNBC's Gabrielle Fonrouge contributed to this report.