Online Sales Strengthen Results, But Can It Last?

As the dust settles from recent quarterly earnings reports for major retailers and brands, one thing is clear, according to analysts: a boom in online shopping amid the COVID-19 outbreak has significantly boosted year-over-year online revenue for many companies while helping to clear inventory levels and sell products at higher gross margin rates.

Stellar results were not evenly spread across the retail sector. But in the most recent quarter, Target, Walmart, Gap, Kohl’s, The Estée Lauder Cos. Inc. (brand sites), Abercrombie & Fitch, Ulta, Foot Locker, Best Buy, Dick’s Sporting Goods and Big Lots all had robust gains in online sales, with many of these companies seeing higher margins as well as reduced inventory levels (in some cases reductions of more than 10 percent).

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The looming question is whether these retailers can maintain the momentum of online shopping, which analysts see garnering about 30 percent of all retail sales this year versus about 15 percent last year. For their part, consumers are willing and able to continue buying online.

According to recent consumer behavior research from Top Data LLC, more than 73 percent of respondents said they’re spending time shopping online more now than they did prior to the pandemic outbreak. “Moreover, nearly nine in 10 (88 percent) said they will continue to shop online more even after a cure or vaccine for COVID-19 is discovered,” authors of the report said.

Digging into the recent quarterly results and related conference calls, analysts at Telsey Advisory Group found that while the back-to-school shopping was lackluster for a variety of reasons, from delayed starts to online-only learnings, e-commerce gains were record-breaking for several companies.

In a list of the top retailers ranked by year-over-year digital sales growth for the most recent quarter, TAG analysts ranked Big Lots at number one with a 400 percent gain, which was followed by Best Buy at 242 percent and Ulta with just over 200 percent. In fourth was Target with 195 percent and Dick’s Sporting Goods at 194 percent. Of the top 20 retailers listed, all had year-over-year gains of more than 50 percent.

Other tidbits culled from analyst calls was that gross margins came in better than expected with these retailers as they canceled promotions and pushed fuller price points. Regarding inventory levels, TAG found that online sales helped maintain already lean levels of goods.

In the most recent quarter, Kohl’s inventories, for example, plummeted 26.2 percent while Big Lots’ inventory fell over 18 percent and Dillard’s declined 20 percent. Urban Outfitters’ inventory also dropped 20 percent while Dick’s Sporting Goods saw its inventory fall 12.2 percent.

The steepest declines were from TJX Cos. and Ross Stores, which had inventory drops of 26 and 39 percent, respectively. But it’s important to note that both brands suffered steep declines in sales during the most recent quarter as their stores, which make up their bulk of their total revenue intake, were shuttered during the pandemic.

While the surge in online sales has helped bolster the top- and bottom-line as well as help control inventory levels for several leading retailers, the role of physical stores, while evolving, is far from irrelevant. Expanding “experiential retailing” is in the plans for many brands. And services such as buy online, pick-up in-store and curbside delivery are continuing to be embraced by consumers — with the former service positioned to entice shoppers to spend more inside a store.

And there’s at least one major retailer who is leveraging “mission-driven” shopping to increase sales inside the store.

In a recent data report from Placer.ai, researchers at the firm said the number of transactions at Walmart in the most recent quarter fell a whopping 14 percent. But the average customer basket size showed a year-over-year gain of 27 percent. “Oh, and visit durations grew 4.5 percent in August, an indication that shoppers are spending more time at Walmart, and buying more stuff,” authors of the report said.

“So, if Walmart can maintain this new trend of maximized basket size, the returns for the brand could be huge,” researchers at Placer.ai said in the report. “And this says nothing of key initiatives like its pushes into health and pharmacy or more digitally harmonized options. But, even if patterns return to normal, it’s clear that Walmart’s visits will return as well. The only takeaway — Walmart’s strength is so unique that it is able to adapt to almost any circumstance.”