Santa Claus is coming to town – but at what cost to Walmart and Target?

CHICAGO, Nov 15 (Reuters) – Pent-up demand is expected to have boosted early holiday sales this year, but big discounters Walmart (WMT.N) and Target (TGT.N) may still see margins fall as surging costs for labor, warehousing and ocean and land freight threaten to play Grinch.

Retailers have been under tremendous pressure from investors to control costs amid uncertainty driven by the pandemic. Shipping logjams, shuttered factories in China and Vietnam, and a scarcity of raw materials have ripped through supply chains in the United States in recent months, and left companies scrambling to make sure they have enough product for the crucial holiday shopping season.

For the third quarter, both costs of goods sold and selling, general and advertising expenses for Target are expected to rise about 10%, while Walmart’s operating expenses are expected to rise nearly 4% to $28.57 billion, according to Refinitiv data.

Walmart, the world’s biggest retailer, will report earnings on Tuesday, while Target is scheduled to post results on Wednesday.

Late last month, ecommerce giant Amazon.com (AMZN.O) said it expects costs during the holiday period to reach about $4 billion as higher wages and other operational disruptions diminish the company’s windfall from online shopping. read more

“It is one competitive market for labor, freight, and customers. We believe most will be prudent in guiding to fourth-quarter profitability even with healthy sales,” Evercore analyst Greg Melich said.

Industry warehouse rents are expected to rise 18-19% this year, according to real estate investment trust Prologis (PLD.N), whose customers include Walmart, Amazon and Target. For the full year, analysts expect Walmart’s rent expenses to rise 7% to $3.28 billion, according to Refinitiv. Reuters News

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