Stellar results from bellwethers Walmart and Target have industry analysts asking: Is retail back?
In truth, retail never went away. Sure, troubled chains like Sears Holdings and J.C. Penney are cratering, and icons like Toys “R” Us have disappeared. Sure, Amazon.com is now grabbing about 50 cents of every dollar spent online, leaving traditional retailers to fight over the rest. And of course, President Donald Trump’s looming China tariffs could upend finely tuned global supply chains and clobber profits.
But the headwinds battering retailers in recent months have prompted the best of the bunch — a group that also includes Nordstrom, Best Buy and Kohl’s — to up their game. They’re sprucing up stores, adding more e-commerce delivery options and improving service with better-trained, higher-paid employees. Those efforts have been turbocharged by what Target chief Brian Cornell said is possibly the strongest consumer environment he’s seen in his 37-year career. Unemployment is near record lows, consumer confidence is at a 17-year high and shoppers have their wallets out.
“The American retail sector is enjoying a renaissance,” Neil Saunders, managing director at GlobalData Retail, said in a note. “Sentiment is upbeat and spending fairly carefree.”
The headline numbers are impressive. Walmart, the world’s biggest retailer, posted its best quarterly sales gain in a decade last week. Target on Wednesday did Walmart one better with its strongest uptick in 13 years. Nordstrom and Kohl’s also outpaced analysts’ projections, with all of them benefiting to some degree from the demise of chains such as Toys “R” Us.
“There are billions of dollars in market share up for grabs and we are positioned to take that,” Cornell said on a call Wednesday. “While a lot of boats are rising, we’re moving even faster. There are clearly winners and losers and we think we’re migrating to the winners’ column.”
Those winners aren’t just picking at the carcasses of rivals — they’re spending billions to tailor a better shopping experience and deflect the threat from Amazon, which brought in an estimated $4.2 billion from its 36-hour Prime Day promotion last month. Walmart, Best Buy and Target all held their own competing sales the same week, and Target said its one-day web promotion delivered its best-ever digital revenue performance outside of the holidays.
Target’s 41 percent online revenue growth was its highest gain since the retailer started tracking that metric separately four years ago, a spokeswoman said. Walmart saw a similar gain from its e-commerce business, which has been boosted by an online grocery pickup program that’s now in 1,800 stores and bringing in customers.
“Well-run retailers are winning right now,” Cornell said. “Others can’t afford to invest in the store experience or drive differentiation, and they are giving up share.”
The losers include CEO-less J.C. Penney, which saw its stock plunge to historic lows as it put more items on clearance to get rid of excess inventory. The woes of J.C. Penney’s and Sears — once solid mall anchors — have created pessimism around the entire department-store sector, hurting rival Macy’s, which beat every estimate set by the market but still disappointed investors.
“If you’re not doing well now, you’ll have a hard time when thing slow down,” said Ivan Feinseth, chief investment officer at Tigress Financial Partners.
Still, as long as the economy stays hot, the best retailers will continue to fire on all cylinders.
