To continue our analysis on the 2023 shopping season (and offer an early look at 2024), the back half of December finished with a bang as we expected. Like we had seen throughout 2023, the consumer comes out and traffic momentum builds into events and holidays (i.e., lower and broader shallows, higher peaks). For holiday 2023, consumers were in both a gifting and celebratory mood, as many retailers of goods and brands of experiences both enjoyed strong second half momentum. Our BevAlc retail index and Nightlife Index both show strong seasonal momentum (below).
Another proof point of the stronger holiday is Costco’s U.S. comparable-store sales growth (ex gasoline) for December, which at +7.4% was more than double the rate of November (+3%) with a notable improvement in the trend for general merchandise (a high-single-digit increase compared to -2% to -6% declines in September/October). This positive tone said, we also know that deals, deals, and deeper deals were an important driver of visitation trends this holiday season; as such, for goods retailers, we expect to see some of the comparable-traffic being offset by lower average-unit-retail (AUR) and comparable-ticket. For example, Walmart said that prices on its holiday bargains were lower by mid-single-digits this December. Nike noted heightened promotional activity when reporting its results, and this week, JD Sports Fashion negatively pre-announced its earnings due to lower realized merchandise margin.
In terms of non-consumables goods, value and beauty remained in style. We've discussed that off-price (treasure-hunt value) has been a strong category all year, especially TJX Companies. On a multi-year stacked basis, TJX (T.J. Maxx and Marshalls) strengthened in November and December, with the week ahead of Christmas especially strong. Ross Stores and Burlington experienced a similar pattern.
We've also noted that department stores experienced a difficult 2023, but with consumers’ rising optimism towards the economy and household income and easing uncertainty about inflation, the holiday season’s momentum improved for Kohl’s and Macy’s compared to 2022 (recall that 2022 was a very weak year as less affluent consumers disengaged from the category. Middle-income consumers also cut back). Dillard’s and Nordstrom’s seasonal momentum was similar to 2022. From Thanksgiving Friday through Christmas Eve, and adjusted for the one extra day, traffic was flat at Kohl's, down -9% at Nordstrom, down -12% at Macy’s, and down -18% at Dillard’s. All of these rates are better on a quarter-over-quarter basis, but again, the comparison is much easier than what we saw in Q3 2023. Also of note, Dillard’s comparable-stores sales have been significantly stronger than traffic as it has successfully grown its customer base of affluent households; Dillard’s is after the prestige luxury shopper and gaining them. We attribute much of Kohl’s outperformance to Sephora at Kohl's.
We also see the strong holiday momentum in Ulta Beauty’s visitation trends. After a slight year-over-year slowdown during September and October, December visitation growth trends were on par with trends we saw earlier in the year. December visits were up significantly compared to November for both 2022 and 2023, bucking the trends we saw at department stores despite December 2022 being a very strong month for Ulta. Additionally, there is no reason to believe that the stand-alone Sephora locations didn’t also perform well.
Last January, we called out beauty as a category positioned for success in 2023. We expect the category to again have a strong year; however, we suspect less outperformance as other categories get some renewed attention. Specifically, we believe that certain home categories have potential such as DIY home improvement (tiling, paint, etc.) and mattresses. Certain categories of apparel also have a chance of improved momentum (we are thinking beyond athletic). We are less certain about aspirational luxury, but more bullish about prestige luxury in the U.S. Lastly, we hope to see a broadening of new restaurant venues and experiential retail.
Next week, we be attending the ICR Conference and hope to pick up on some burgeoning trends for 2024. We'd love to find time to catch-up with you if you'll be there--feel free to schedule time here.
