As shopping picks up, gap between retail’s haves, have-nots widens

As the second quarter kicked off, consumers had some cash to burn. They had refunds from canceled summer plans and money they would typically spend out to dinner or at the movies, not to mention extra funds from government stimulus checks. 

Yet many decided to skip the mall. Instead, they bought computers, home decor, groceries and supplies for do-it-yourself projects from big-box retailers. 

The coronavirus pandemic and resulting lockdowns have underscored the widening gulf between retail’s haves and have-nots, as shopping picks up again and American consumers vote with their dollars. Last week, Walmart, Target, Lowe’s and Home Depot reported tremendous sales gains and blew away Wall Street estimates. But Kohl’s and L Brands posted double-digit sales declines. As more retailers report results this week, investors will likely see similar patterns.

Best Buy, which reports earnings Tuesday morning, is expected to benefit from stay-at-home trends as people work and attend school remotely. Later Tuesday, Nordstrom will offer another look at the struggles of department stores. Gap, which reports Thursday, could note how it pivoted to selling masks when fewer shoppers were buying office attire. 

Meantime, a number of mall-based retailers, like J.C. Penney, J.Crew and Brooks Brothers, have filed for bankruptcy this year. Many were already in trouble before the pandemic hit, as consumers increasingly shopped online or ventured to places like Target where they can get their groceries and a new pair of shoes in the same trip. More bankruptcy filings are expected before the year is over. 

About halfway through their fiscal year, mall-based retailers have seen their earnings plunge 256%, according to data from Retail Metrics. So-called off-mall companies, which would include Home Depot and Walmart, have altogether reported an earnings decline of just 0.6%, the firm said. 

The pandemic is exacerbating a divide that began before the global health crisis. Mall-based retailers have underperformed their off-mall competitors in 19 of the last 20 quarters, Retail Metrics founder Ken Perkins said. 

‘Target’s in that winning column’

Retailers that have so far posted strong second-quarter numbers entered the pandemic on better footing. They had stronger balance sheets and previous investments in their digital businesses that teed them up for success — even during an unforeseen global health crisis. 

“In a really crass way, the pandemic has shown a very bright light on who the best are,” said Moody’s retail analyst Charlie O’Shea. 

Target is one company that’s illustrated the sharp contrast. It has picked up 10 million new digital customers and $5 billion in market share during the first half of the year. 

“We’re clearly seeing in retail today winners and losers, and I’m really proud to say that Target’s in that winning column today,” Target CEO Brian Cornell said last Wednesday on CNBC’s “Squawk Box.” 

Walmart and Target had both expanded e-commerce services, such as curbside pickup and delivery. Lowe’s had improved its website as part of a broader turnaround effort. And Home Depot had made significant investments to its supply chain. 

Other strategic decisions also paid off. Target capitalized on its approach of using stores as online fulfillment centers and launching in-house brands. It had launched a new activewear line, All in Motion, less than two months months before the pandemic struck the U.S. and much of the country’s workforce began to work from home in casual clothes. 

And the big-box retailer had other unique advantages. As essential retailers, they could keep their stores open as some competitors were forced to shut during shelter-in-place orders. They had huge assortments of merchandise that made them one-stop shops as customers made fewer trips to the store because of safety concerns, including the food, electronics and DIY supplies Americans sought as they spent more time at home. And while some pulled back because of unemployment, others spent stimulus checks or had money to spend as they scaled back vacations and couldn’t go out to restaurants during the pandemic. 

Company executives acknowledged last week, however, that at least some of those factors could fade. Walmart said it got a bounce as customers spent their stimulus checks on TVs, apparel, groceries and other goods. That tapered off in July, however, after consumer spent their windfall. Chief Financial Officer Brett Biggs told CNBC that the retailer is watching Washington, D.C., to see if there will be another stimulus check, which could help consumers and its bottom line. 

Target CEO Brian Cornell and Lowe’s CEO Marvin Ellison said in interviews that they benefited from customers spending their dollars differently. Instead of going out to dinner or on a far-flung vacation, customers bought tech items to help them work remotely, redecorated their homes and turned their backyards into places to relax. 

“We’re not on planes,” Cornell…

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