Can JC Penney and Sears Survive a Slow Holiday?

According to the National Retail Federation:

NRF expects sales in November and December (excluding autos, gas and restaurants) to increase a solid 3.7 percent to $630.7 billion — significantly higher than the 10-year average of 2.5 percent. Online sales are forecast to increase between 6 and 8 percent to as much as $105 billion. Retailers are expected to hire between 700,000 and 750,000 seasonal workers this holiday season, in line with last year’s 714,000 holiday positions.

While 3.7% is above the average for the period measured, it is well below the more successful years from 2003 to 2005 and 2010 and 2011. Further, the advance in online sales will be dominated by Amazon.com Inc. (NASDAQ: AMZN) and the largest retailers, like Wal-Mart Stores Inc. (NYSE: WMT), which have the most visited websites. The mid-sized and small retailers, in most cases, will not do nearly as well.

ALSO READ: Are JC Penney Shares Worth Only $7 or Worth $13?

The fate of J.C. Penney and Sears Holding has a foundation in whether the weakest retailers can gain ground in the retail season, which accounts for a large portion of total annual sales in the industry. J.C. Penney is in recovery mode, but not making much of one. Despite recent improvement and same-store sales increases, its health has to be compared to 2011 and 2012, when revenue was well above $17 billion. The number will be short of $13 billion this year.

For Sears, the comeback will be more difficult. It has not had a pulse recently. Revenue was $43.2 billion in 2011 and $41.6 billion in 2012. Management will be fortunate to post revenue of $31 billion this year, accompanied by huge losses.

Another barrier to improvement from J.C. Penney and Sears is that Wal-Mart is desperate to get its U.S. operations back on track. That means aggressive price cuts and millions of dollars spent on promotions. It means aggressive free shipping. Optimists about J.C. Penney and Sears would argue that they do not compete with Wal-Mart directly. However, Wal-Mart competes for tens of millions of middle-class and low-income holiday shoppers, and its size makes it a large factor.

The holiday season will be modest this year for most of the retail industry. For J.C. Penney and Sears, modest won’t be enough.

ALSO READ: 3 Top Jefferies Hidden Value Stocks to Buy Now