U.S. retailers face headwinds from slowing online sales and inflation
As more U.S. shoppers return to stores this spring, e-commerce-focused services like curbside pickup that provided a lifeline during the early days of the pandemic could become a burden on the margins of major retailers.
In the past year, a pandemic-induced e-commerce boom has benefited traditional retailers like Walmart Inc., Target Corp. and Costco Wholesale Corp., and their investments in omnichannel capabilities have enabled them to capitalize on online demand. Consumer-related stimulus spending also helped boost same-store sales growth, which includes both digital and in-store transactions. But an e-commerce slowdown is expected as the number of COVID-19 cases declines in many parts of the United States, and higher labor and delivery costs could begin to bring these services online. less profitable, retail analysts said.
Last mile delivery costs for online products are notoriously expensive and time-consuming for retailers, said Garrett Nelson, Senior Equity Research Analyst at CFRA. And workers who fill online orders for curbside pickup often receive higher wages than most other store workers, Nelson added.
Persistent COVID-19 spending that could eat away at selling margins, along with rising commodity, freight and fuel costs, are also problematic. Nelson noted. Large consumer goods companies such as The Coca-Cola Co. and The Procter & Gamble Co. recently announced price increases, which will likely be passed on to a more value-oriented buyer looking to spend less, said Nelson.
“We’re seeing cost pressures that we haven’t seen in a long time,” Nelson said. “The competitions are very difficult as we pass the first anniversary of the pandemic. “
Businesses will work to offset rising costs as consumers who previously spent more online during the pandemic worry less about security and convenience.
“Eventually, they’re going to start looking at what they’re paying for some of these delivery services or choosing a closer retailer that has the curb,” said Doug Hermanson, senior economist at Kantar.
Costco and Walmart Inc. saw year-over-year increases in same-store sales in 2020 with average quarterly increases of 13.0% and 8.9%, respectively, as online shopping during the pandemic helped increase profits. BJ’s Wholesale Club Holdings Inc., a unit of Walmart, posted an average quarterly increase in same-store sales of 21.4% in 2020, followed closely by Target, which saw an average quarterly increase of 19.1% overall. throughout 2020.
According to S&P Capital IQ, analysts expect Walmart and Costco to see same-store sales growth decline to less than 5% in the second half of 2021. Meanwhile, analysts expect Target to rebound from an immediate decline to a single-digit territory at 9.4% in the second quarter of 2021 to 17% at the end of 2021.
Michael Baker, managing director of DA Davidson which covers Walmart, said it would be difficult to compare this year’s growth to that of last year, but companies could compensate slowing e-commerce sales with improvements in store traffic.
Walmart and Target reported a strong return in in-store shopping and a decline in digital sales in their latest quarterly results. Walmart expects us to comDish sales will increase to single digits in the second quarter, excluding fuel, while Target expects medium to high single-digit same-store sales growth in the second quarter.
Nelson of CFRA said Walmart and Costco could have a bigger impact on bottom line as they are more tied to the grocery category, which has been boosted by online shopping trends, but is expected to decline as consumers eat more. farther and farther from home.
The target, however, is more favorably positioned because the food and beveRabies only accounts for about 20% of its total net sales, and the company has more exposure to the higher margin general merchandise categories. Target has also become more proactive with increases in the minimum wage to $ 15 an hour, potentially making retention less of a problem, Nelson said.