Retail Ready to Put Third Quarter Behind It

Wall Street and the rest of the world are looking hopefully beyond the pandemic — but between here and the relief of a vaccine lie retail third-quarter results, and they are expected to sting for most.

Unlike the doom and gloom of the second quarter, when the lockdown was in full swing and most fashion retailers were forced to close, the major chains reporting results this week and next are expected to show more signs of stability and hints at how well positioned they are for next year.

Almost across the board, analysts project sharply lower earnings or losses.

The exceptions are Victoria’s Secret parent L Brands Inc., which was in deep turnaround mode a year ago, and Target Corp. and Walmart Inc., which have used their status as “essential” retailers to stay open and power through (while also growing online).

The rest of the pack — from Gap Inc. to Macy’s Inc. and Nordstrom Inc. — will no doubt rely on other metrics to make their case.

E-commerce is expected to be the go-to component to highlight since companies have poured money into their online businesses to grab or keep social distanced market share.

But the third quarter is also teeing up what looks to be a remarkable holiday, with inventory constraints potentially delivering what many retailers have always wanted — a season with fewer price promotions.

Given all the shutdowns, supply chain disruptions and economic unease, shoppers who have managed to keep their jobs and are buying for Christmas might know they have to move fast to have what they want under the tree.

“This is going to be a light inventory holiday,” said Simeon Siegel, an analyst at BMO Capital Markets. “This is going to be a holiday, I believe, where demand outstrips supply. And I think it’s going to be the least-promotional holiday we’ve seen for years.”

Many top-tier players in fashion — from Ralph Lauren Corp. to Farfetch — were already cutting promotions and now brands of all stripes are joining them out of necessity.

“Sell less, charge more and earn more has been the theme of the pandemic for those that looked to go on the offensive,” Siegel said.

But the trend might not last into a more normal post-pandemic environment, when at least some retailers can be expected to cut prices to grab share and restart the cycle.

“The one guarantee of retail is retail will always over inventory,” Siegel said. “I don’t think anyone should be worried or hopeful that this is an ongoing dynamic.”

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