With the holiday season approaching, discussions and concerns about expected consumer spending are increasing. According to Deloitte's annual holiday survey, shoppers are feeling more optimistic despite concerns about inflation, and are planning to increase their holiday spending by 8% year over year. On October 19, Brian McCarthy, Principal of Retail Strategy and Transformation at Deloitte, joined Brad Smith on Yahoo Finance's Wealth! to discuss what he calls an expected record-breaking shopping season.
As per Deloitte's latest holiday retail survey, consumers are planning to spend more money in this year's holiday season, primarily due to a "rosier economic outlook." He says that we are seeing a 9 percentage point increase in positivity towards the economy's future. In addition, the overall consumer perception of higher prices is also a factor, with around 70% of shoppers believing that their prices for gifts in 2024 will be higher than in 2023.
Retail executives are also optimistic about the upcoming season, with 80% expecting to see stronger sales both online and in brick-and-mortar. As per the survey, consumers plan to spend a record-high average of around $1,778 this year, with the average consumer spending experiencing an 8% increase from the 2023 survey. These trends are expected to emerge despite the inflationary and price pressures that some consumers have cited. McCarthy told Yahoo Finance:
"We're seeing after this year of frugality and restraint, consumers are feeling a bit more optimistic about the economy. They're planning to have a very festive holiday season."
The Brand Loyalty Crisis of the Season
An interesting brand loyalty crisis is also emerging this holiday season. Consumers are looking for better prices and deals instead of going back to the brands they always shop at. They are looking for the best value and are generally inching away from brand loyalty, prioritizing quality and price over brand names and tags. According to McCarthy, consumers seek quality, value, and variety when they go holiday shopping. He says that:
"With the perception of higher prices still top of mind, consumers are really caught between trying to stretch their wallets and being festive and so this really means they're torn between seeking value and remaining loyal."
He further says that around two-thirds of consumers are expected to switch brands if they find the price too high, and around 50% are willing to switch retailers to save. In addition, 78% of shoppers plan to participate in promotional events this October and November. Trends also show that privately labeled brand sales are expected to grow faster than national brand sales this year.
He suggests that retailers must ensure that they provide good quality, good value price points, and a variety of selection that attracts consumers. He also offers advice to consumers looking to save some dollars without slashing items from their holiday list, saying that:
"Shoppers are encouraged to explore multiple retailers to look for a competitive deal or a price point that they think is going to work for them."
He adds,
"I have found AI is a really interesting thing to start asking for where you may find particular products or promotional deals so you can use technology to be a bit more savvy that way.
"According to the WTW Global Retail Survey for 2024, around 52% of retailers this year expect increased profitability in the coming two years. In addition, approximately 48% of retailers are looking to leverage artificial intelligence in their operations to offer their customers a personalized and efficient shopping experience. However, with more and more businesses turning towards AI, around 43% of the respondents voiced concerns about high cybersecurity risks likely to arise with increasing reliance on new technologies. Despite the risks, a majority of retailers are incorporating AI into their operations, streamlining and expediting their functioning".
Our Methodology
To compile a list of the 7 best department store stocks to buy according to hedge funds, we consulted the Finviz and Yahoo Finance stock screener to compile a list of the top 15 department store stocks. We then choose the top 7 stocks with the most number of hedge funds. The list of the 7 best department store stocks to buy according to hedge funds is arranged in ascending order of number of hedge fund holders as of Q2 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A manager standing in a hypermarket, pointing out items available for wholesale.
Walmart, Inc. (NYSE:WMT) is a multinational, omnichannel retailer that operates a chain of discount department stores, grocery stores, and hypermarkets in the United States and 23 countries. Apart from retail and wholesale stores and clubs, it also operates e-commerce websites and mobile applications. Its operations are divided into three segments: Walmart International, Walmart US, and Sam's Club. It has over 10,500 stores worldwide and employed around 2.1 million associates globally at the end of FY2024. 1.6 million of these associates were concentrated in the US.
Walmart's (NYSE:WMT) widespread presence, wide assortment of items, and convenience give it a competitive advantage in the industry. Customers have a lot to choose from and a large number of stores to go to. Its store and club businesses are growing, with pickup growing faster than both domains. Walmart (NYSE:WMT) is improving its speed and delivery accuracy, giving more options to customers through e-commerce progress. Its earnings for fiscal second quarter of 2025 show a 23% global membership income growth, with Sam's Club US achieving a record high membership count. Advertising sales driven by marketplace sellers also grew by nearly 50%, all showing a strengthening in the company's business for the future.
Walmart (NYSE:WMT) is experiencing a strong consumer overall. Its fiscal Q2 2025 results show increasing market share with higher unit volume and transaction counts across the US. The company's food, health, general merchandise, and wellness sectors are improving. It claims that since consumers across all income levels look for one thing, value, its US marketplace sales grew by 32% for the quarter by resonating with consumers.
Walmart (NYSE:WMT) is finding tangible ways to employ generative AI to improve member, customer, and associate experience. It is leveraging large language models and data from others to build its own. For instance, the company has used generative AI to improve its product catalog. It has also introduced an AI-powered search on its app and site, offering customers more help through its new shopping assistant that provides ideas and advice.
Overall WMT ranks 1st on our list of the best department store stocks to buy according to hedge funds. While we acknowledge the potential WMT as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than WMT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
