Store closings in the United States hit a record pace during the first half of the year, and indications are that the rout hasn’t slowed since then. Granted, the COVID-19 pandemic took a huge toll on these consumer-facing companies. It would be naive, however, to suggest most of the names in the industry weren’t already weakened by the rise of online shopping alternatives.
Digital Commerce 360 estimates American shoppers spent more than $600 billion online last year, up 15% from the prior year’s e-commerce tally, and e-commerce accounted for about 16% of the country’s total retail sales. Coronavirus-related shutdowns accelerated this shift.
But before you assume the worst for each and every brick-and-mortar store chain, know that some retailers have figured out how to cope with this change. Others have even adapted enough to thrive with it. Kohl’s (NYSE:KSS), Bed Bath & Beyond (NASDAQ:BBBY), and Walmart (NYSE:WMT) are among these survivors, and each is worth watching closely this month.
Department store chain Kohl’s is one of the few retailers with a fiscal calendar that doesn’t quite match up with the typical annual calendar which ends the fourth quarter on the final day of the year. Rather, Kohl’s third quarter ended in October. This is somewhat advantageous for investors, though, as it gives them a glimpse of how the retailer is performing right before it moves into what’s usually a busy holiday shopping season. The company will post its third-quarter numbers on Nov. 17. Current and prospective shareholders will want to assess how management feels about what it sees for the fourth quarter as of the middle of the month.
Kohl’s certainly has several new levers it can pull to accelerate its business. For instance, although it logged a loss during its second quarter due to pandemic-prompted shutdowns, it was able to adapt quickly. Digital sales grew 58% year over year, boosted by the retailer’s willingness to let stores themselves fulfill almost half of its online orders. The expansion of its free, contactless curbside pickup is one growth driver, and last month the company unveiled plans to dramatically expand its activewear and lifestyle apparel business.
The speed at which this clothing category’s expansion unfurls could make a big difference this holiday shopping season.
2. Bed Bath & Beyond
Home goods retailer Bed Bath & Beyond fell off most investors’ radars last year. Years of slowing sales growth turned into sales declines in early 2019, prompting then-CEO Steven Temares to step down in May of last year. The board of directors temporarily replaced Temares with Mary Winston but were seemingly in no hurry to hire a permanent chief executive. The board eventually selected Target executive Mark Tritton for the job in October 2019. By that time, the market seemed to have either forgotten about Bed Bath & Beyond or given up on it. The COVID-19 pandemic would surely inflict whatever remaining damage needed to be done to end the company’s 49-year run.
Dismissing this company is quickly proving to be a mistake, however.
It’s been obscured by more dramatic headlines in the meantime, but Bed Bath & Beyond is slowly but surely rebuilding itself into something better. In early October, the company reported same-store sales growth of 6% for the three-month stretch ending in August, despite the challenges imposed by the coronavirus at the time.
Granted, its stores were credited with playing their part in the 89% year-over-year improvement in online sales, which would have otherwise fallen by 12%. That doesn’t change the fact that Tritton has clearly found a way to connect with consumers at a time when doing so is proving particularly difficult.
Investors will simply want to keep their eyes and ears open for the retailer’s news releases, which have been coming every few days. One of them could speak volumes about the quality of the turnaround underway.
Finally, add Walmart to your list of retailers to keep tabs on this month.
Like Kohl’s, Walmart will report Q3 earnings on Nov. 17 for the three months ending in October, a period in which the world (somewhat) transitioned away from coronavirus-related challenges and moved back toward normal. The report will be an early glimpse into what may be in store for the all-important holiday season.
The big numbers everyone should be watching will of course be Walmart’s same-store sales for the U.S. and overall e-commerce growth. During the second quarter, the former grew 9.3%, while the latter was up 97% year over year. Adjusted operating income grew 18.6% on an overall 5.6% increase in companywide revenue.
Those are tough numbers to follow, and failing to match or exceed them won’t necessarily indicate problems abound. On the other hand, Walmart has proven to be a pillar of consumer assistance in this difficult environment. A survey by Gordon Haskett Research Advisors indicates Walmart was the choice for 58% of new online grocery shoppers, and Global Data reported that 68% of shoppers will use curbside pickup in the future.
Considering the retailer is still in the early part of its journey up this learning curve, this piece of Walmart’s business still has great growth potential.