NEW YORK— The world is changing quickly and decisively under the influence of the COVID-19 pandemic, but, while that is a circumstance generating concern, it also means that some companies will discover they are better positioned to gain from the situation than others.
Six retail companies that are likely to enter the post-coronavirus universe even stronger are Walmart, Target, Costco, Amazon, Home Depot and Kroger.
The reasons why are several, and not just because they are big retailers that have enormous resources and capabilities, although that plays a substantive role. The truth is not all retailers will survive the COVID-19 outbreak even if they limp ahead for a time after the market begins to get back to something like normal, and that, in itself, will create opportunity for stronger companies to build sales and market share.
More specifically, advantage may derive from existing efforts to leverage omnichannel positioning, as with Walmart’s expansion of curbside pickup and to-consumer delivery. For its part, Target’s acquisition of delivery service Shipt looks especially fortuitous now.
In some cases, advantage can emerge as an extension of existing trends, as with Home Depot’s getting a chance to build on developments generally affecting the home center/hardware store channel since Millennials started buying, remodeling and renovating homes. The same developments have boosted Costco, too, given the generation’s needs now that it is settling down and having children.
In other cases, it has to do with technology, as in Amazon’s ability to shift priorities to address the most compelling needs of its customers in a crisis situation or Kroger’s enhanced ability to track and analyze customer behavior in a situation where more of its recent initiatives, including expansion of delivery, are getting tested just as it is about to trial a significant new partnership with convenience grocer Ocado.
The major companies spotlighted as HOMEWORLD BUSINESS® Retail Champions will be at the forefront as the retail industry emerges from the COVID-19 crisis based on the multiple advantages they can leverage. Still, it’s important to also consider that the coronavirus-impacted marketplace has the odd attribute of turning up a negative for every positive it produces and a positive for every negative.
So, Amazon customers may appreciate its ability to address everyday needs they might otherwise have a hard time satisfying at local stores at a time of temporary shortages, but it also has faced a degree of criticism for not being able to deliver other purchased products in a timely manner, especially to Prime customers. Indeed, Amazon has found itself in something of an unwelcome spotlight given its prominence in the market response to the COVID-19 pandemic, a challenge it has met with increasingly dynamic operational measures and more prominent messaging regarding steps taken to protect customers and employees. Amazon’s response has required complex adjustments to its entire business, and, if that’s true of most companies who continue functioning through consumer stay-at-home requirements, Amazon has faced at least as comprehensive a series of challenges as any retailer.
In a first quarter conference call, Amazon CFO Brian Olsavsky pointed out that the company had a range of issues to confront even as more consumers turned to it as an available shopping resource during domestic confinement.
“While customer demand remains high, the incremental revenue we are seeing on many of the lower ASP essential products is basically coming at cost,” he said. “We’ve invested more than $600 million in COVID-related costs in Q1, and expect these costs could grow to $4 billion or more in Q2. These include productivity headwinds in our facilities as we provide for social distancing and allow for the ramp up of new employees.”
Not only that, but retailers face a market in recession, whether of short- or long-term duration. Neil Stern, a partner in the consulting firm McMillon Doolittle, noted that the shift from short-term coronavirus-generated changes, with an initial emphasis on basic provisions, to the middle term of consumers moving from pantry stocking to purchasing products that make living at home more pleasant, has been happening under the cloud of recession and unemployment. In some cases, unemployment will be short-term as furloughed employees await the return-to-work call or longer term as jobs disappear along with businesses that don’t survive the coronavirus-related downturn. Although government intervention, such as enhanced unemployment benefits, may mitigate the effects of economic dislocation, eventually the fallout from a massive leap in joblessness is going to tell.
Stern asserted that government intervention, whether additional unemployment aid or the broader consumer stimulus, won’t necessarily send consumers on a spending spree.
Coresight Research, which has been closely monitoring the COVID-19 pandemic since it initially emerged in China, pointed out that many consumers are concerned enough about their personal prospects to restrain spending. In a Coresight survey conducted on April, 29, it indicated that one in nine residents in the U.S. has lost a job and that 42% are worried about losing their job or part of their income versus 39.2% a week earlier.
However, that doesn’t necessarily mean that consumers will altogether hunker down. Even as coronavirus effects on work and home hit, product categories beyond absolute essential, ones that helped consumers make the most of their new stay-at-home reality, took off, including home office products and small kitchen appliances. Already, some evidence suggests that apparel and shoes, product categories that had been weak going into the COVID-19 crisis and tanked as it hit, have rebounded at least somewhat. David Sykes, the head of U.S. for Klarna, which offers a payment app and has been monitoring sales shifts among its seven million U.S. users in detail, said that Millennials and Gen Xers had shifted to more apparel and shoe shopping as coronavirus purchasing shifted out of the pantry-filling stage.
Even amidst the coronavirus crisis, a range of retailers pointed to significant gains. Among online-centric retailers, for example, Retail Champion pick Amazon could trumpet gains associated with coronavirus movement restriction, but so did Wayfair, which could point to a range of product categories that had taken off for it from the point where consumer stay-at-home orders proliferated; and Overstock.com, which enjoyed an April year-over-year sales increase of 120% year over year with home furnishings leading, CEO Jonathan Johnson reported. Online retail has provided the best first indication of just how the COVID-19 outbreak is changing consumer shopping habits.
“There is going to be a sea change in consumer behavior,” Stern said, “first brought about by necessity.”
Stern said that retailers that had curbside pickup capabilities had an early and obvious advantage in the coronavirus crisis but others have potential strengths that may be less immediately visible including those with strong private label programs, a big advantage in the last recognized calamity confronting the U.S., the Great Recession. Strong private label performers such as Aldi, newcomer Lidl and outside of the deep-discount grocery segment Costco, may have a leg up on the marketplace as it’s evolving today. Some advantages will play out behind the scenes, as retailers who have superior data collection and analytics capabilities gain insights into the unfolding behavior of existing and, frequently, new customers they can apply in operations and marketing.
In many cases, the COVID-19 crisis will prompt new thinking and approaches to the market but, as was the case in the recession 12 years ago, the situation will often act as a catalyst accelerating development and acceptance of existing products and services. Retailers who entered into the coronavirus crisis with an edge in those operations that have enabled them to deliver the goods consumers demand effectively and in initiatives such as curbside pickup and delivery that have helped them to cope with lockdowns as well as the muscle to maximize their execution despite the challenges thrown at them by a roiled marketplace will become even more powerful in the emerging environment.
“I don’t see how you get around it,” Stern said. “Part of this thing is: retailers that withstand the short-term effects are going to have to have the capital to change with the customer and deal with the massive advantages of an Amazon or Walmart.”
Coresight Research cautioned that, even as some parts of the U.S. began rolling back movement and shopping restrictions, reopening of discretionary retail is still at the mercy of the coronavirus and government officials dealing with it. Stores will need to minimize or greatly reduce the risk to employees and customers to thrive, but it remains unclear what measures are effective. Not only that but, consumers won’t immediately recover from the impact of COVID-19 on their lives.
Coresight posited a subsequent steady-state level of retail engagement that will likely remain below the spending levels of 2019 and extend for some time as consumers deal with their access to stores and their confidence in safety while shopping, even as retailers cope with potential labor problems in the topsy-turvy coronavirus-upended world as government aid to the unemployed has caused some staffers to resist returning to work as long as the enhanced benefits last.