Chandra predicts off-price retailers such as TJX and Ross Stores, as well as Nordstrom's Rack, Saks' Off Fifth and Neiman Marcus' Last Call concepts, will continue to benefit from label-conscious middle-income shoppers who aren't migrating back to higher-price stores.
On Tuesday, J.P. Morgan analyst Matthew Boss upgraded TJX to "overweight" from "neutral," in part due to the growth prospects for the off-price sector. In a note to investors, Boss referenced a meeting with TJX CEO Carol Meyrowitz, in which she referenced the company's first positive traffic numbers in a year last quarter, and a broadened consumer base shopping at its stores. That includes those with a household income between $50,000 and $1 million annually.
"Their eyes have been opened to, 'There are discount channels where I can spend and get value,' " Chandra said. "They're not migrating back."
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Although Ross Stores also posted a strong quarter, with same-store sales rising 4 percent, it nonetheless sounded a cautious note for the fourth quarter, saying the promotional environment could cause it to lose some share.
Still, most analysts speculate it will be the full-line companies that focus on middle-income consumers — particularly in the apparel sector — that will get squeezed out this holiday. Compounding the problem for these retailers is the fact that aside from athleisure, there is no major apparel trend driving spending.
On the flipside, Piper Jaffray analysts Erinn Murphy and Neely Tamminga named high-end brands Michael Kors and Nordstrom as two of their top names heading into the holiday. And with consumers expected to spend a significant share of their wallets on consumer electronics and jewelry this holiday, analysts are also bullish on high-end jeweler Tiffany, as well as Apple and Best Buy.
The top end of luxury, in particular, is expected to do well.
"They are a little more insulated from ... these swings," Chandra said.