The difference between being deemed “essential” or “non-essential” during the coronavirus crisis had a profound impact on retailers’ bottom line. Businesses that were able to remain open saw sales surge, but not without issues—supply chains have been stretched to meet the demand, and overhead increased with higher labor costs and the money it cost to ensure social distancing and sanitizing stores and distribution centers.
Shuttered stores scrambled to push sales online—the uptick in e-commerce was significant, but not enough to covers losses. The crisis was the final straw for many department stores and malls that had been struggling for various reasons before the crisis. Department stores, like many retailers, are taking the opportunity to reassess their store fleets, and more closures are sure to be in the future.
Physical retail has been struggling, and the pandemic has exacerbated the issues, but stores aren’t going away. There are complex economic forces behind retail closures, as well as the reality that the US simply has too many stores and some private equity–backed retailers have been dumb or greedy.
Recent bankruptcy filings, such as those of JCPenney, Neiman Marcus, and J.Crew, do not herald the end of retail, says Professor Anthony Michael Sabino, Esq. of the Tobin College of Business at St. John’s University.
“Do not write off brick and mortar retail just yet,” says Sabino, who teaches business law at Tobin. “While stores are empty now, and some consumers have detoured to online sellers, it would be a mistake to ignore the pent-up consumer demand that is boiling beneath the surface.”
Essential retailers’ first-quarter earnings as defined by the coronavirus:
Target: “Throughout the first quarter, our team and guests faced unprecedented challenges arising from the spread of COVID-19. In the face of those challenges, our team showed extraordinary resilience as guests relied on Target as a trusted resource for their families. With our stores at the center of our strategy, and a significant investment in the safety of our team and guests, our operations had the agility and flexibility needed to meet the changing needs of our business,” said Brian Cornell, Chairman and Chief Executive Officer of Target Corporation. “With the dedication of our team, the benefit of a sustainable business model and a strong balance sheet, we are confident Target will emerge from this crisis an even stronger retailer, with higher affinity and trust from our guests.”
GlobalData Managing Director Neil Saunders described Target as one of the “beneficiaries of the pandemic” while noting the hit to Target’s bottom line. “This is the reality of retailing during the crisis: those retailers that remained open got a spike in trade, but the cost of servicing that business was punishingly high,”
Walmart: In a call with analysts, CEO Doug McMillon described three distinct parts of the quarter. Initially, he said customers stockpiled groceries and household essentials. Later, he said they bought puzzles, video games, and bicycles to keep them entertained, office and exercise equipment to help them with their new routine at home, and decor to improve their living spaces. At the end of the quarter, the retailer saw a bounce in spending as people got stimulus checks and bought more discretionary items, such as clothing, TVs, and toys.
“Not only have products and categories like hand sanitizer, disinfecting wipes and sprays, toilet paper, beef, and pork been hard to find but items such as laptops, office chairs, and fabric have been cleared out in some of our stores and online,” he said. “We’re working to recover our in-stock position as we begin the second quarter.”
Amazon: CEO Jeff Bezos said, “If you’re a shareowner in Amazon, you may want to take a seat, because we’re not thinking small. Under normal circumstances, in this coming Q2, we’d expect to make some $4 billion or more in operating profit. But these aren’t normal circumstances. Instead, we expect to spend the entirety of that $4 billion, and perhaps a bit more, on COVID-related expenses getting products to customers and keeping employees safe. This includes investments in personal protective equipment, enhanced cleaning of our facilities, less efficient process paths that better allow for effective social distancing, higher wages for hourly teams, and hundreds of millions to develop our own COVID-19 testing capabilities. There is a lot of uncertainty in the world right now, and the best investment we can make is in the safety and well-being of our hundreds of thousands of employees. I’m confident that our long-term oriented shareowners will understand and embrace our approach, and that in fact they would expect no less.”
Non-essential retailers’ first-quarter earnings as defined by the coronavirus:
Kohl’s: “We responded [to store closures] with speed and agility, leaning into our digital business as the only channel to engage with our customers,” Chief Executive Officer Michelle Gass said during an earnings conference call. “While we have a fast-growing digital business, it has only replaced a small portion of the sales loss from our entire store base.”
Macy’s: “This is a challenging time for the country, for retail and for Macy’s, Inc. COVID-19 has impacted the lives of many of our colleagues and customers, and health and safety remain our top priority. We closed all of our stores – Macy’s, Bloomingdale’s and Bluemercury – on March 18, which had a significant impact on our first quarter results,” said Jeff Gennette, Chairman and Chief Executive Officer. “Looking back, our performance in February was solid and in line with our expectations, but we saw a precipitous decline in sales with the stores closure in March. As a developed omnichannel retailer, we experienced a steady uptick in our digital business in April, which was encouraging, but only partially offset the loss of sales from the stores. The digital performance was driven by strong execution and enhanced fulfillment options, including curbside pickup where allowed.”
Nordstrom: “We’re entering the second quarter in a position of strength, adding to our confidence that we have sufficient liquidity to successfully execute our strategy in 2020 and over the longer term,” CEO Erik Nordstrom said in prepared remarks.
Neiman Marcus has reopened 10 of its 42 stores subsequent to its bankruptcy filing on May 7.
JCPenney filed for bankruptcy protection on May 15—the company planned to reopen 153 of its 846 stores this week, but is likely to permanently close as many as 242 stores.
While there are early signs of recovery, retailers will need to assure consumers their stores are safe for shoppers and store associates.
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