‘A resurgence of physical retail’: Retailers report upticks in store sales

Target

It wasn’t too long ago that analysts bemoaned the onset of the “retail apocalypse,” but retail earnings reports coming out in the past two weeks have them singing a different tune.

On Wednesday, Target’s earnings presented investors with hope for the future and probably granted them a sigh of relief — the retailer flew past Wall Street’s expectations and saw its biggest sales growth in 13 years. Target reported that comparable sales increased by 6.5 percent, buoyed by stronger foot traffic at physical stores, and e-commerce sales have grown by 41 percent since a year ago.

On the earnings call, Brian Cornell, chairman and executive officer of Target Corp., said the favorable results come from not only a booming economy, but the labors of Target’s $7 billion plan it impacted in early 2017, which included improving delivery and pickup options, adding more private label brands, remodeling stores and introducing smaller store formats.

The company is the latest discount retailer to paint a picture of high sales returns and an increase in foot traffic in their earnings reports, stemming from more shoppers heading to stores and initiatives to clean up the retail environment. Walmart, Nordstrom, Home Depot, Kohl’s and TJ Maxx all reported anywhere from 3 to 8 percent growth in sales at their physical stores as well as double-digit percentages of a sales boost in e-commerce sales, all beating Wall Street expectations.

Walmart reported it saw the strongest sales its seen in a decade at its physical stores and expects e-commerce sales to be up by 40 percent. Nordstrom saw a same-store sales growth of 4.1 percent and 4 percent growth at Nordstrom’s Rack. Kohl’s reported same-store growth of three percent and TJ Maxx reported a same-store sales growth of 6 percent.

“We are starting to see a resurgence of physical retail as the market is correcting itself and digital leaders make significant investments in physical retail,” said David Bray, CEO of ad agency Briz Media Group, which works with tech companies that service retailers.

Analysts point to a strong economy as a major reason behind the surge in foot traffic. According to the Commerce Department, gross domestic product rose 4.1 percent in the second quarter, with unemployment down to 4.1 percent.

“Customer confidence is at the highest level in years, shoppers are spending more because of the tax cuts and low unemployment and retailers are benefiting,” said Sucharita Kodali, retail analyst at Forrester.

Overall, there is growth across retail segments. According to research firm Lipper Alpha Insight, 157 companies in its retail and restaurant index have reported their second-quarter earnings and 73 percent have reported numbers above analyst expectations.

But aside from more shoppers opening their wallets, analysts believe retailers’ efforts to improve their stores and offerings are also driving much of the change.

“They deserve credit,” said Andrew Lipsman, principal analyst at eMarketer. “It took some retailers some time to make changes but now they’ve gotten religious in implementing change. They’ve been getting smarter about what the omnichannel consumer wants.” Lipsman points to Target’s acquisition of grocery delivery startup Shipt Inc. to expand its same-day delivery services and how it has added more options for consumers to pick up their purchases in-store.

Meanwhile, Walmart has invested in beefing up its grocery and apparel options as it competes with Amazon, Nordstrom has been testing new concepts with stores that don’t sell any merchandise, Kohl’s is adding more locations outside of left-for-dead malls and expanding its partnership with Amazon and TJ Maxx is focusing on experiential retail.

“Part of this resurgence is due in part to brick-and-mortar retailers taking advantage of customer data and putting it to work to help drive instore traffic,” said Bray.

Retailers like Target are also benefiting from closures of J.C. Penney, and Toys “R” Us and Babies “R” Us stores, picking up some of the leftover market share. And the always lucrative back-to-school season is cause for retailers to expect more growth on the horizon in the coming quarter. “Right now, there is a perfect storm for discount retailers such as TJ Maxx and Kohl’s,” said Bray.

Related
Deep Dive: Amazon strategies

And yet, while sales are currently on the upswing, skeptical analysts believe such a positive outlook won’t last long in such a fickle industry. “I won’t get too excited because retail is cyclical,” said Kodali. “It didn’t take much to get people spending more and it won’t take much to get people to cut back either.”

Get more insight, news and analysis around the modernization of retail and e-commerce by subscribing to our weekly retail briefing email.

https://digiday.com/?p=300207
Digiday Top Stories
  • Member Exclusive
    The dream of the DTC exit is fading

    Last week Lululemon announced plans to acquire Mirror, a connected fitness startup, for $500 million. It may give a false sense of hope to DTC startups about what type of exits are possible in this environment.

  • Member Exclusive
    How DTC startups fall flat in marketing their values

    Direct-to-consumer startup founders have found themselves in a number of unprecedented situations over the past three months -- from having to keep their company afloat while stores were closed to having employees confront them about racism within the company. Many of these same startups have also found themselves in hot water for how they responded to these situations. The issue at hand is simple: customers feel like these companies aren't practicing what they preach.

  • Member Exclusive
    As cities reopen, the DTC store strategy is changing

    For digitally-native brands, Soho has often been the first place for digitally-native startups to open stores. Now, it's a ghost town, and is indicative of the challenges DTC brands will face going forward in plotting out their physical retail strategies.

  • Member Exclusive
    As calls for improving diversity increase, many VCs are silent

    Over the past two weeks, there's been a flood of direct-to-consumer startups issuing statements about steps they will take to better support the black community, and build more diverse companies. But venture capitalists have remained largely quiet.

  • Member Exclusive
    The most important thing DTC startups can do is build diverse companies

    DTC startups have responded to protests over the past week through social media posts and donations. Now, the focus needs to shift to building diverse companies.