American retail stocks face a major test during the holiday shopping season! In the K-shaped economic differentiation, Walmart and TJX are popular, while Macy's and Kohl's are under pressure.

When investors monitor the customer traffic in various stores on "Black Friday," they are actually looking for another holiday opportunity - retailers that can perform well in a high-priced and consumer budget-constrained hybrid economic environment. In addition to retail giant Walmart Inc. (WMT.US), discount retailers like TJX (TJX.US) and Ross Stores, Inc. (ROST.US) are expected to attract some budget-seeking customers from traditional department stores like Macy's, Inc. (M.US) and Kohl's (KSS.US). While high-end brands like Ralph Lauren Corporation Class A (RL.US) and Tapestry (TPR.US) are expected to attract high spenders, this is already reflected in their stock prices - these two stocks have already increased by 60% and 69% respectively this year. Despite the increasing number of consumers choosing online shopping (which has greatly driven the development of Amazon.com, Inc. and Walmart Inc.), investors and analysts still observe consumer sentiment and preference trends through store traffic. Against the backdrop of continued inflation and slowing labor market, investors expect lower- and middle-income families to tighten spending, while the affluent class benefiting from the stock market uptrend in 2025 will offset some consumption gaps. Kim Forrest, Chief Investment Officer at Bokeh Capital Partners, pointed out, "As economic differentiation intensifies - with some people in a comfortable situation while others are struggling - and everyone still has a willingness to consume, all retailers face escalating game risks." Walmart Inc., TJX receive "praises" with some retail stocks undervalued Kim Forrest observed shoppers under "great pressure" at Walmart Inc. before Thanksgiving, and this retail giant is "adjusting prices to help people get what they need," with 10-pound and 5-pound bags of potatoes, and various sizes of turkeys. She believes that Walmart Inc.'s "visually impactful displays" (such as a home section simulating a Thanksgiving dinner, and carefully decorated baby cribs) give it an advantage over Target Corporation (TGT.US). She points out that Target Corporation once inspired impulsive purchases through store displays, but now "has lost the magic of product displays." This view seems to be confirmed in the latest financial reports of Walmart Inc. and Target Corporation. Last week, Walmart Inc. reported better-than-expected performance for the third quarter of fiscal year 2026 and raised its full-year performance guidance for the second consecutive quarter, demonstrating this global retail giant's continued strong growth momentum in an environment of economic uncertainty - the company is attracting more price-sensitive consumers and gaining a larger share in digital consumption. In contrast, Target Corporation, whose core customer base is America's middle class, had mixed results in the third quarter. Due to this large retail enterprise facing price reductions and soft demand in key product areas, its key retail indicator, same-store sales, fell more than market expectations. Kim Forrest emphasized, "the budget-conscious consumer seeks the best value for money, and they will choose stores that they believe can meet that demand, rather than experiencing mediocre shopping places." She expects the parent company of TJMaxx and HomeGoods, TJX, to achieve stronger sales performance than Macy's, Inc. and Kohl's. While Kohl's predicted a narrower sales decline and profit growth next year on Tuesday, driving the stock price to a 42.5% single-day surge, the company's same-store sales have declined for 11 consecutive quarters. David Swartz, Senior Analyst at Morningstar focusing on the retail industry, said that in recent years, investors have clearly favored Ross Stores, Inc. and TJX over Macy's, Inc. and Kohl's, with the latter two companies "suffering heavy blows in competition with discount retailers, and also being impacted by Amazon.com, Inc. and Walmart Inc." In the higher-end market, David Swartz believes that Ralph Lauren Corporation Class A, Ulta Beauty (ULTA.US), and Tapestry have performed well this holiday season, but he also warned that if valuations rise further, the risk may increase. On the other hand, NIKE, Inc. Class B (NKE.US) and Lululemon Athletica (LULU.US) have performed poorly in recent years. David Swartz noted that although "they may not deliver a strong holiday season performance," their low valuations mean that "if the situation improves, these stocks could rise significantly." He pointed out that some retailers started promotions as early as October, while others will further increase discounts closer to Christmas or the New Year, and some consumers will choose to buy all gifts online, stating that "you cannot judge the entire holiday season's sales based on one day." Kim Forrest is optimistic about the potential turnaround opportunity for VFC Group (VFC.US) - the stock has fallen 17% this year, and she also pointed out that Urban Outfitters (URBN.US) stores were outperformed by its Anthropologie chain. Against the backdrop of generally pressured consumers, Hardika Singh, Economic Strategist at Fundstrat, will closely monitor the consumption levels of the high-income group. She said, "if their spending also decreases, the economy may run into trouble." Holiday shopping season arrives, consumers become more cautious The American holiday shopping season officially kicked off this Friday, but consumers are facing a series of economic worries - a cooling job market, stagnant wage growth, persistent high inflation, plus the chain reaction that tariffs policies are about to trigger. In this context, "Black Friday" will be a litmus test - will American consumers withstand the increasingly fierce economic headwinds to continue spending, or will this consumption-driven American economy begin to show signs of fatigue? All indications suggest that this year's holiday shopping season will tend towards rationality. Data from the market research company Circana shows that while overall consumer spending is expected to remain level with last year, product sales may decline by as much as 2.5%. In other words: consumers will have to spend more money but will be able to buy fewer things. Marshal Cohen, Chief Retail Advisor at Circana, said, "We expect this to not be a wildly stimulating holiday season." "There won't be a pile of gifts under the Christmas tree this year." Data from the National Retail Federation shows that this year's holiday shopping season is expected to attract 187 million consumers, reaching a record high and accounting for over half of the entire U.S. population. But consumer willingness to spend has decreased significantly, according to a Deloitte survey, which shows that the average planned spending has decreased by 4% to $622 compared to last year. Consumers planning to tighten spending cited higher living costs and financial constraints as the main reasons. A holiday shopping survey by consulting firm Accenture Plc Class A pointed out that the expected total spending growth "largely reflects price increases, not an increase in consumer confidence." American retailers derive 20% of their annual sales from November and December. This year, companies are vying for consumers who are increasingly price-sensitive and anxious. While people are still willing to spend - especially the top 10% income group - they are being more selective about where their money goes. Some consumers said they plan to take advantage of "Black Friday" promotions not to splurge, but to stock up on essentials. At the same time, some brands are finding it difficult to offer the iconic large discounts of "Black Friday" due to tariffs policies. Consumers shopping in physical stores may encounter longer queues and fewer salespeople, as seasonal retail hiring is expected to drop to its lowest level since 2009. Despite macroeconomic turbulence, American consumer spending has remained relatively stable this year. Earlier in the year, some consumers bought large quantities of goods in advance to avoid impending tariffs, which boosted sales. Subsequently, the strong stock market has allowed the higher-income group to continue spending. Many retailers say that people's buying habits remain stable, and the impact of tariffs on prices is not as significant as initially expected. However, there have recently been some pessimistic signals. Low-income consumers are reducing spending, with a significant drop in the US Consumer Confidence Index in November and a slowdown in retail sales growth in September. Rick Gomez, Chief Marketing Officer of Target Corporation, said consumer sentiment has dropped to its lowest level in three years, with concerns about employment, affordability, and tariffs. A survey by the National Retail Federation found that 85% of consumers expect tariffs to push up prices for gifts and holiday goods. Jessica Ramrez, Managing Director of Consumer Collective, said consumers may tend to buy goods next year that may be affected by tariffs. In recent years, with more consumers taking advantage of autumn discounts and online events like Amazon.com, Inc. Prime Day to start holiday shopping early, the "festive nature" of Black Friday has diminished. Michael Brown, Head of Retail Business in the Americas at strategic consulting firm Kearney, said this trend is more evident this year due to concerns about tariffs, which could affect overall spending over the next two months. The National Retail Federation predicts that the year-on-year growth rate of holiday season sales in November and December will slightly slow to 3.7%-4.2%, lower than 4.3% in 2024, but total sales are expected to break the $1 trillion mark for the first time. The American economy is facing a "K-shaped fracture" Currently, the American economy is showing a clear K-shape. The stock market and real estate market have hit new highs under the stimulation of loose fiscal and monetary policies, and the wealth of the affluent class owning stocks and properties has soared. However, at the same time, ordinary people who rely on wage income and do not own assets have seen their actual purchasing power severely eroded due to high inflation. Analysts believe that the current K-shaped economic situation in the US is driven by a combination of factors, including the Trump administration's tariff policy, restrictive immigration policy, technological progress, and the Federal Reserve's tightening monetary policy. Brian Coulton, Chief Economist at Fitch Ratings, said, "In the context of a weakening labor market, GDP and consumption appear to be resilient, which may partly reflect the impact of three factors. First, the impact of AI capital expenditure spree, second, the tightening immigration policy leading to a slowdown in labor supply, and third, the prosperity of the stock market has reduced the savings rate, with most of the growth in stock market wealth benefiting affluent consumers." He pointed out that from the fourth quarter of 2024 to the second quarter of 2025, real GDP in the US grew by 0.8%, and the AI sector's capital expenditure spree contributed as much as 0.7 percentage points to the growth. Economists say that while a K-shaped economy does not mean the entire economy is in recession or prosperity, it is a more fragile economy, which means that if certain economic indicators decline sharply, the risk of economic recession will increase significantly. Mark Zandi, Chief Economist at Moody's Corporation, pointed out that the US economy is mainly driven by the affluent class, and as long as they continue to consume, the economy can avoid recession, but if the affluent class becomes more cautious for some reason, the economy will face serious trouble. A report by Moody's Corporation shows that as of this year, the top 10% of affluent American households accounted for 49.7% of the nation's total consumption, hitting a record high since 1989, compared to 36% over 30 years ago. Just in the one-year period from September 2023 to September 2024, spending by the affluent class in the US increased by 12%, while spending by the working-class and middle-class significantly decreased during the same period. Mark Zandi said that consumption by the affluent class in the US "has never been so strong," and the US economic development has "never been so reliant" on this group. The discussion about the "K-shaped economy" intensifies mainly because more and more middle-class Americans, and even middle-income Americans earning over $100,000 a year (the Pew Center's standard for middle-income families in 2025 is annual income between $41,000 and $124,000), are being pushed towards the lower part of the "K-shaped economy." As of 2021, the customer base of well-known budget retailers in the US has expanded beyond low-income groups, with some more economically well-off consumers also opting for discounted goods. Research shows that nearly 28% of the middle-income group in 2025 will turn to discount stores like Dollar Tree, Inc., compared to just 20% four years ago. It is reported that the average budget for Americans during the holiday shopping season in 2025 for gifts, food, decorations, and other seasonal items is $890.49, a decrease of 1.3% from the same period last year. But factoring in inflation, this proportion has actually decreased by 4.3%, a noticeable decline. Some analysts believe that the "K-shaped economy" not only exacerbates short-term differentiation, but could also lead to structural wealth disparities, resulting in economic growth relying on the affluent class, while the middle- and lower-income groups will face long-term financial constraints. Zandi has previously sharply pointed out that the economic prospects are completely "tied to" the fate of the rich. He also raises a sharp question: "We must carefully consider whether this pattern is sustainable. If not, what does that mean for future growth?"