Quarterly reports indicate that the coronavirus pandemic has had a significant impact on large, bricks-and-mortar retailers. Widespread lockdown orders have drastically changed the way consumers choose and access products. Here are the winners, losers, and survivors of the first quarter’s catastrophic disruption.
Overall Trends in Retail Market
The first overall market trend is unsurprising: stores that were allowed to keep doors open fared much better than those forced to operate solely online. The second observation is that consumers tended to buy more essential goods than luxuries like clothing or decorations. This is understandable given the fact that most consumers try to limit indulgent spending amid economic uncertainty.
The coronavirus pandemic has also caused a huge surge in online spending. While this would at first seem like a great bump for the profit margin, it carries with it much higher costs related to packing and shipping. But rising costs were not unique to e-commerce. In-person prices also rose as business-owners had to cover the cost of hazard pay, protective equipment, industrial-grade sanitization.
The main takeaway: Operating costs rose all-around, even for those businesses that were able to continue sales amid the shutdown.
Walmart Sees Its Heyday
Walmart managed to have a great quarter, breaking from the larger trend in the market, mostly because it was deemed an essential business, and continued welcoming customers throughout the pandemic, even as consumer alternatives were limited. US same-store sales increased by 10% and e-commerce sales skyrocketed, increasing by 74%.
What’s more, in an attempt to limit time outside the house, shoppers visited Walmart less frequently, but purchased far more on each trip. Walmart CEO Doug McMillon says it was quite difficult to keep shelves stocked, “for many of these items we were selling in two or three hours what we normally sell in two or three days.”
While revenue was strong, costs also soared. The retail giant spent almost $900 million as a direct result of the pandemic. Walmart was forced to hire over 200,000 employees to sanitize facilities, stock shelves, and ensure that the e-commerce system could withstand the heightened traffic.
A Mixed Bag
Home Depot and Target managed to have a pretty good quarter despite squeezed profit margins. Home Depot’s revenue grew by 7.1%, but the company also had to spend a profit gouging $850 million in order to keep stores opened.
Target also managed to stay in the black during lockdowns, with e-commerce sales up a whopping 141%. Still, the company did well mostly with small-margin products, like groceries and cleaning supplies. Few shoppers spent on clothing, electronics, or other non-essential products that typically compose the bulk of Target’s profit.
A Department Store Nightmare
Bricks-and-mortar retailers have been combating the rise of e-commerce for years, but the coronavirus crisis may be the nail in the coffin for some nationwide chains. Kohl’s, the national department franchise, had a uniquely dismal quarter resulting from the consumer trend away from purchasing apparel during the pandemic. With stores shuttered and its main product categories not even selling online, Kohl’s suffered a nightmare scenario.
The company reported a net loss of $541 million, down from a $62 million profit last year, with sales dropping 43.5% during the lockdown. And while company says it can overcome this setback because its stores are so well suited for social distancing, it is more likely Kohl’s will go the way of fellow apparel stores JCPenney, J. Crew, Neiman Marcus, and Pier 1, which have all filed for bankruptcy since March.
Meanwhile, Macy’s, one of the earliest modern department stores that has become an anchor at shopping malls across America, has been forced to permanently close several locations and lay off thousands of workers. All of this begs the question: Will the coronavirus crisis finally make the traditional department store obsolete?