How Target, Amazon, and Kohl's Are Gearing Up for the Holidays

The holiday season is when many large retailers rake in a substantial chunk of their annual sales. For these companies, it's critical to get the strategy right before the season starts. This year, back-to-school sales were fairly bleak, and with consumer confidence flagging, a good preparation is even more important than usual this year. With Amazon.com    as the name to beat, it may all be about online presence. Let's take a look at how Target , Kohl's , and Amazon are gearing up for the holidays.

Target
The Minnesota-based retailer looks to take the battle to Amazon's turf, albeit with a bit of a twist. The company recently launched a service through which customers can order products online and then pick them up at a Target store. The service should be rolled out to all stores by Nov. 1.

Adding to its online efforts, the chain will be highlighting 100 items that have been trending on Pinterest, as well as airing commercials based on social media. This year, Target has also enlisted the aid of a former CIA officer who will advise the company on "family friendly intelligence techniques" and help parents figure out what the kids really want for the holiday season. Cutting its hiring goal for this year, the company plans to reduce its number of holiday hires by about 20%.


Kohl's
Kohl's seems to be expecting big things from this holiday season. Contrary to what Target has planned, Kohl's says it will be adding 54,000 workers to its holiday team, more than last year's increase of 53,000. The discount department store chain tends to derive about a third of its yearly sales from the all-important fourth quarter.

So far, Kohl's e-commerce initiatives have met with some success. Some 7% of sales now come from online channels. The company hopes to expand this to between 10% and 15% over the next few years, which would presumably eat away at some of Amazon's market share.The company's most recent earnings report issued fairly upbeat guidance for the third quarter, although this did not include the holiday season.

Amazon
Amazon seems to have dodged a lot of the consumer spending weakness that has been affecting other retailers this year. Its third-quarter report solidly beat expectations with a 24% sales increase. Amazon provided a fairly optimistic forecast of fourth-quarter sales, unlike rival eBay. 

For the holidays, Amazon will be putting together a list of the 350 most popular gifts of the season, and will be offering two "Deals of the Day" through Dec. 22. Additionally, the retailer will be putting quite a bit of effort into marketing its latest Kindle device, expecting electronics gifts in general and wireless gadgets in particular to do well this year. However, the company did raise its free shipping qualifying amount from $25 to $35 recently, presumably in an effort to cut costs. 

Ahead of the buying frenzy, the Internet giant has ramped up spending on warehouse capacity and Web-based services, which may pressure the already precarious profitability situation. Amazon posted a loss in three of the last five quarters, but still continues to trade at a frankly insane multiple. Last year Amazon opened 19 warehouses, and plans to open only seven this year. In any case, eMarketer projects a 15.5% increase in online sales for the last quarter of the year, which should benefit the company's formidable top-line growth. 

Valuations and metrics
The most meaningful comparison can perhaps be made between Kohl's and Target, as Amazon's stock valuation seems to play by different rules. Kohl's is clearly the cheaper of the two looking at trailing P/E, trading at 12.81 versus Target's 15.4. Additionally, its margins are quite a bit higher, while the return on equity is a few percentage points lower. To give an update on Amazon's trailing P/E, as it is quite staggering, the firm trades at a multiple around 1,300 according to CNBC. No other company that loses money would be rewarded with such a lofty number.

The bottom line
This holiday season looks crucial for retailers, many of which have been battered throughout the year on the back of weak consumer spending, and more recently an embarrassing government shutdown that cost about 0.6% of GDP according to some analysts. Kohl's seems fairly optimistic going into the back end of the year, with hiring on the increase, and seems to be trading at a very reasonable multiple as well. Still, Amazon's incredible sales momentum and the perhaps irrational exuberance over its stock price may provide it with yet more upside.

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The article How Target, Amazon, and Kohl's Are Gearing Up for the Holidays originally appeared on Fool.com.

Fool contributor Daniel James has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and eBay. The Motley Fool owns shares of Amazon.com and eBay. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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