Retail Sector Margin Resilience Amid Leaner Black Friday Discounting in 2025

The 2025 Black Friday shopping season has unfolded as a case study in retail adaptation. Faced with cautious consumer spending and persistent economic uncertainty, retailers have shifted toward leaner discounting strategies, prioritizing margin preservation over aggressive price cuts. This recalibration has created opportunities for investors to identify undervalued stocks in the retail sector-particularly those demonstrating disciplined promotional practices and category-specific resilience.

A New Era of Discounting: Leaner Promotions and Strategic Pricing

According to a report by the National Retail Federation (NRF), 186.9 million shoppers participated in the 2025 Black Friday-Cyber Monday stretch, a modest increase from 2024 but accompanied by a projected sales growth of just 3.7% to 4.2%-a decline from the 4.8% seen the previous year. This slowdown reflects broader consumer behavior shifts: households are prioritizing essentials over discretionary purchases, with rising healthcare costs and inflationary pressures constraining budgets.

Retailers have responded by adopting a more measured approach to discounting. Online discount penetration in the U.S. fell to 31% in November 2025, the lowest level since tracking began in 2016. This trend underscores a sector-wide pivot toward targeted promotions and margin-friendly strategies. For instance, Walmart launched early Black Friday deals in mid-November, slashing prices on high-ticket items like 85-inch TVs and outdoor grills. Meanwhile, Amazon, the dominant platform for Cyber Week shopping (94% of shoppers plan to use it), has leveraged mobile commerce (73% of purchases) to drive efficiency.

Dillard's: A Model of Margin Discipline and Traffic Resilience

Among department stores, Dillard's Inc. (DDS) stands out as a prime example of how disciplined pricing and strategic inventory management can yield margin resilience. In Q3 2025, Dillard's reported a 3% year-over-year increase in retail sales to $1.40 billion, with gross margins expanding to 45.3% from 44.5% in the prior year. This growth was driven by strong performance in categories like ladies' accessories, lingerie, and juniors' apparel.

Dillard's Black Friday strategy exemplifies the sector's shift toward leaner discounts. The company maintained a 59% discount penetration rate, consistent with 2024 but the lowest since 2016. More notably, the average discount rate dropped to 17% in 2025 from 28% in 2019, reflecting a focus on measured markdowns. This approach has been bolstered by Dillard's clearance centers, which saw a 7.5% year-over-year increase in visits between January and August 2025. These centers, operating in 28 of Dillard's 272 stores, have become a key driver of traffic and margin preservation.

Despite Q4 2025 challenges-including a 1% decline in total retail sales and a drop in gross margin to 36.1% of sales-Dillard's has maintained a strong balance sheet, with $1.15 billion in cash and equivalents as of November 1, 2025. Analysts project an EPS of $8.68 for Q4 2025, with a high likelihood of exceeding this estimate.

Sector-Wide Shifts: Specialty Retail and Department Stores

The broader retail landscape reveals a bifurcation in discounting strategies. The Specialty Retail sector, for example, saw a surge in discount penetration to 69% in 2025, with an average discount of 24%. This contrasts with Department Stores, where discount penetration remained at 59%, but average discounts fell to 17% from 28% in 2019. This divergence highlights the sector's strategic recalibration: while specialty retailers rely on volume-driven promotions, department stores are increasingly prioritizing margin protection.

Gen Z's influence further complicates the picture. This demographic, which accounts for 55% of holiday spending through omnichannel platforms, is driving demand for early bird deals and experiential shopping. Retailers that integrate these preferences-such as Dillard's, which reported strong weekend traffic and destination appeal-are better positioned to navigate the evolving landscape.

Investment Implications: Undervalued Stocks and Long-Term Resilience

For investors, the 2025 Black Friday season underscores the importance of identifying retailers that balance promotional activity with margin preservation. Dillard's, with its disciplined discounting, strong cash position, and category-specific growth, exemplifies this model. Similarly, off-price and discount retailers are poised to benefit from heightened price sensitivity, as 1 in 3 shoppers begin holiday purchases during events like Amazon Prime Day.

The broader sector's shift toward leaner discounts and targeted promotions suggests a long-term trend toward margin-friendly practices. Retailers that adapt-by leveraging clearance channels, optimizing inventory, and catering to Gen Z's omnichannel preferences-will likely outperform in a climate of cautious consumer spending.

As the retail sector navigates this complex environment, investors should focus on companies like Dillard's that demonstrate strategic pricing discipline, robust traffic generation, and category-specific resilience. These traits not only support near-term earnings momentum but also lay the groundwork for sustainable growth in an era of evolving consumer behavior.