Target’s soaring online growth suggests scared shoppers may not return when malls and department stores reopen

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Malls and other retailers are slowly beginning to reopen, but that doesn’t mean consumers are lining up to shop.

In fact, if Target Corp.’s TGT, +3.81% skyrocketing digital growth is any indication, shoppers will stay put and make their purchases from home.

States like Georgia and Alabama are starting to loosen stay-at-home restrictions in an effort to reopen the economy for business, giving residents the option to spend money at places outside of the home besides the grocery store.

Read:These states are loosening economic shutdown orders; Texas expected to announce new rules soon

However, First Insight data shows that shoppers are in no rush to head back to the local mall. A new survey shows that only 33% of consumers feel safe shopping in a mall, compared with 54% who feel safe shopping in a grocery store, half who feel safe at a drugstore chain, and 45% who feel safe at a big-box retailer, like Walmart Inc. WMT, +0.70% or Target.

“As retail visits expand past essential retail like grocery and drugstores, other retailers, and malls in particular, need to be thinking of ways to inspire a sense of safety for consumers, and it will need to go beyond offering gloves and masks at the door,” said Greg Petro, chief executive of First Insight, in a statement.

First Insight is a digital product-testing platform.

Target said quarter-to-date same-store sales rose more than 7%, including more than 100% growth in digital. For the month-to-date, digital same-store sales soared more than 275%.

Shoppers aren’t just taking advantage of home delivery for items purchased online, though that is popular. The Shipt service, which offers delivery in as soon as an hour, has added more than 80,000 new shoppers, according to Target Chief Executive Brian Cornell, who spoke on a call with the media in conjunction with the update. These figures put that service on track to double the number of users by the end of April.

Same-day services that allow customers to pickup orders from the store, often with a contactless feature, are also popular.

Also:Bubble Wrap maker Sealed Air and SimpleHuman CEOs are prepping for a touchless future after coronavirus pandemic

Cornell said order pickup volume on some days was twice as high as Cyber Monday, the popular online holiday season shopping day.

Though digital growth is going through the roof, Cornell says stores are at the center of the company’s strategy.

“Stores are critically important to American consumers,” he said.

Wells Fargo analysts say geography will be a big determining factor for which retailers see traffic when the doors open.

“While all states could restart by May/June, the pace of the recovery could vary greatly and is likely to depend on the actual COVID-19 health burden, population density, ongoing testing/containment strategies, the efficacy of therapeutics, and the ultimate availability of a vaccine,” analysts led by Edward Kelly wrote in a note published this week.

Among those that Wells Fargo forecasts are in a favorable geographic position are Boot Barn Inc. BOOT, +7.09% and off-price retailer Ross Stores Inc. ROST, +3.46% Boot Barn has more than 60% of its stores in states like South Carolina, Arkansas and Texas that have registered the lowest number of daily deaths due to COVID-19 so far. For Ross Stores, the figure is more than 40%.

Retailers like Five Below Inc. FIVE, +3.26% , TJ Maxx parent TJX Cos. TJX, +0.67% and Bed Bath & Beyond Inc. BBBY, +6.51% are forecast to have a more difficult recovery because more of their stores are in locations like Pennsylvania, California, New York and Michigan where the number of deaths are much higher.

Sensing the consumer trepidation, The Wall Street Journal reports that many businesses, like Best Buy Co Inc. BBY, +3.27% , Gap Inc. GPS, -2.81% and Macy’s Inc. M, +2.65% are waiting to reopen.

Macy’s is reportedly in talks to raise $5 billion in debt to avoid bankruptcy. And Cowen analysts say has about four months of cash should stores remain closed.

“Even with a quick recovery from the virus, the financial sector will also need a healthy recovery period before we find ‘normal’ discretionary spending dollars in the wallets of consumers,” said Scott Compton, a senior analyst at Forrester.

With jobless claims surging to more than 26 million due to the coronavirus, whether shoppers are in the market for much more than the necessities is another factor that may impact whether consumers have a need for the variety of goods found at a mall or department store.

Hershey Co. HSY, -0.85% says sales have fallen off as more consumers find themselves out of work.

Read:Hershey says shoppers are buying fewer snacks and sweets as unemployment soars

But Target, which sells everything from essentials to clothing and other items, says there’s been a slight increase in sales for things for the home quarter-to-date.

Analysts say stimulus checks are playing a role.

“Management noted trends accelerated significantly around mid-April, which we believe was driven by the stimulus checks that started hitting individual accounts starting on April 13, driving pent-up demand in discretionary categories such as hardlines and home furnishings,” wrote JPMorgan analysts in a note.

Hardlines includes items like appliances and sporting equipment.

JPMorgan rates Target stock overweight with a $120 price target.

Clothing and accessories, however, are down 20% for the quarter-to-date at Target, and down more than 40% for the month-to-date.

“The mix of sales, specifically the significant softness in apparel, indicates that consumers, once they decide to go to the store or hit the website, are focused on efficiency and ‘needs versus wants’ as necessities are driving the significant increase in comp store sales, as well as the explosive growth online,” said Charlie O’Shea, Moody’s lead Target analyst.

This shift in spending drove a Stifel analysts to maintain their hold rating on Target shares.

“Our hold rating on Target shares reflects concerns over near-term cost pressures related to the coronavirus, and the ongoing and increasingly rapid shift of consumer spending away from traditional retail, relevant as Target has greater exposure to channels with high online penetration, including apparel, hardlines, and household essentials,” analysts wrote.

Stifel has a price target of $120 for Target.

KeyBanc Capital Markets analysts note the margin pressure that the clothing sales decline will have on Target.

“Nevertheless, we think that Target is uniquely positioned to benefit from a contracting department store space and investments in digital,” analysts led by Edward Yruma wrote.

KeyBanc rates Target stock overweight with a $140 price target.

Department stores, in addition to Macy’s, are particularly vulnerable, with reports that Neiman Marcus will file for bankruptcy this weekend and J.C. Penney Co. Inc. JCP, -11.27% is seeking out a loan of up to $1 billion for bankruptcy funding.

Don’t miss:Neiman Marcus is likely just the start: Analysts expect 100,000 stores to close by 2025

“Department stores lead a group of consumer companies that have seen their odds of default spike over the past month, the latest indication that coronavirus-related challenges are mounting for an already struggling group of retailers,” S&P Research wrote in a recent report.

“Retailers dependent on foot traffic at malls as well as hotels and casinos that rely on leisure travelers were among the groups that saw their odds of default tick up the most.”

Larisa Summers, senior vice president of e-commerce at Optoro, a returns logistics company, says the assumption is that store traffic won’t go back to previous levels. And the retailers that have made the most progress in digital stand a chance to thrive.

“Things will be different, consumers will be permanently changed, and people will be more afraid of crowds,” she said. “They’ll want added tools right away.”

Originally Published on MarketWatch

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