In a year when retail was under intense pressure, the two big-box specialists not only maintained their footing — up against e-commerce giant Amazon nonetheless — but managed to build market share.
“In many ways, the pandemic amplified the winners and losers as they existed before the pandemic. It simply widened the chasm,” Gerald Storch, chief executive officer of Storch Advisors, a retail advisory firm, as well as the former vice chairman of Target, told WWD. “Target, as did Walmart and Costco, went into the pandemic in a very strong position.”
In a year when J.C. Penney, J. Crew, Neiman Marcus and scores of others succumbed to bankruptcy and 20 percent top-line declines became commonplace, Walmart grew revenues 6.7 percent to $559 billion last year while Target’s revenues shot up 19.8 percent to $92 billion.
They both won with similar game plans, using their status as essential retailers to stay open, gain ground and press their advantage.
When most retailers were forced to go dark last year, shoppers went to Target and Walmart stores to pick up essentials like cleaning supplies, toiletries and food, in many cases resulting in shopper traffic that severely strained the two retailers’ logistics operations. While in the first months of the pandemic consumers were focused on those essentials, as COVID-19 dragged into the summer, shoppers began looking to other categories to brighten their lives, including home furnishings, sports equipment and apparel.
The effect was two-fold: It increased brand awareness for the big-box players while offering convenience for shoppers, many of whom were already stressed physically, emotionally and financially. That was yet another hit to mall-based department store and other retail competitors.
“Shoppers were already evolving away from department stores and away from many of these mall-based apparel chains before the pandemic,” Storch said. “On top of all the value and quality and having great internet platforms, the big-box guys offer everything. In the pandemic, that’s a huge advantage. Customers don’t want to have to go to multiple stores. It feels safer to do all their shopping in one quick trip.”
Walmart and Target were in many ways in the right place at the right time — and were able to develop the right services for the moment.
“The limits on store hours and store traffic set up an environment where, if you have a quality pick-up and curbside pick-up capability, you’re really going to be able to expand your reach and enhance your position with customers, and that’s exactly what happened,” said Moody’s vice president Charlie O’Shea.
But being able to take advantage of their suddenly essential positioning wasn’t just a matter of being nimble. Both companies spent years investing in new capabilities before the pandemic. “It was happening already, but obviously the pandemic just accelerated it,” O’Shea said.
The way Target and Walmart leveraged their stores also illustrated the value and staying power of brick-and-mortar, he said, especially at a time when much is made of the death of physical retail.
“One of the challenges that Amazon will face, and was facing during the pandemic, was the lack of a store base, and the lack of physical assets close to the customer where the consumer could pick up their product where they want, when they want,” O’Shea said. “That’s where the Walmarts and Targets have been able to step up and flex their store bases.
“There’s a reason the stores are on the assets side of the balance sheet, and not on the liabilities side,” he said.
Despite all the buzz about e-commerce — an area both Target and Walmart are pushing hard on — the store is still the center of retail gravity.
E-commerce penetration is around 22 percent of the total retail industry, according to Craig Johnson, founder of Customer Growth Partners, but was up to as much as 26 or 27 percent at the height of the U.S. lockdown a year ago.
As the pandemic wore on, demand increased for certain apparel categories, such as swimwear, intimates and activewear as shoppers looked to occupy their time in pandemic-approved ways. And both Target and Walmart were quick to respond.
Target built its new All In Motion activewear line into a billion-dollar brand, introduced luxury lingerie brand Journelle and Levi’s Red Tab in stores, increased its assortment of Apple products and revealed plans to open Ulta Beauty shops-in-shop in select Target locations later this year.
Walmart introduced World Rugby Hall of Famer Phaidra Knight’s PSK Collective activewear line launched on walmart.com in January while also taking other steps to bolster its apparel offering, including by elevating luxury fashion veteran Denise Incandela to the post of executive vice president, apparel and private brands. On Tuesday, the retailer tapped designer Brandon Maxwell as creative director of its exclusive brands Free Assembly and Scoop.
“Fashion is not about fabric. Fashion is about newness. Retail is all about newness,” Johnson said. “And you want to have that newness in the store experience, in the product and how you communicate with the customers. So, you always want to continuously invest in newness that will position you correctly for the long term, but it also helps in the short term, too.
“And then, when the market turns, you have new products to show the customer, not just the same-old, same-old stuff that was sitting on the shelves the day that the stores closed, which is something that happened to a lot of apparel companies,” he added.
And Target and Walmart are determined to keep riding the wave of growth generated by the pandemic. Both firms have revealed plans to sink billions of dollars into their businesses over the next several years to build up supply chains, distribution methods, stores, technology and their respective workforces.
“That’s smart because these companies knew that they need to invest in their companies, invest in their product lines, invest in their assortment on a continuous basis,” Johnson said. “You don’t just do it when times are good. Both of them were already investing in their digital capabilities pre-pandemic. And I don’t mean just their own website, but also the whole delivery mechanism. Target does the Shipt [same-day delivery] thing. They both have the curbside click-and-collect.
“All those new product developments, they don’t happen overnight,” he added. “There’s a lot of research behind them, product development, testing, etc. So all that was happening before, during and then after the peak of the pandemic. That kind of helped them both short term, but all of those investments are going to pay off for them in the long term.”
The spending has been most apparent in e-commerce.
Target doled out $550 million in cash to buy Shipt in 2017. Walmart spent $3 billion-plus to buy Jet.com in 2016, bringing on board the site’s founder Marc Lore to overhaul its larger e-commerce business. Lore said in January that he is stepping down, but he leaves a company that is much changed.
Lore and his Jet.com team are widely seen as having had a huge impact on Walmart’s online business, particularly in terms of helping the retailer improve its algorithms and bring on the right expertise to leverage its store base of some 5,400 locations.
“Walmart well utilized its logistic and technological strengths to expand its market position during the pandemic,” said Jie Zhang, professor of marketing at the University of Maryland Robert H. Smith School of Business. “The surge in demand for online shopping, including purchases of essential products, created a great opportunity to broaden the reach of its e-commerce business to many new customers.
“Walmart’s widespread store locations not only continued to serve a large number of American shoppers in the offline space, but also allowed the retailer to utilize stores as fulfillment centers to meet online demand and to shorten delivery times,” Zhang said.
But Walmart also encountered new challenges during the pandemic that tested its fulfillment operations and pushed the company to hire more workers, and to lean even further on its thousands of stores, its executives have said.
Another dimension of Walmart’s strategy has been to boost its customer service offerings, unveiling its Walmart+ $98 a year subscription service in September, and subsequently sweetened the deal for members by eliminating the $35 minimum order requirement for free deliveries.
“Membership platforms…create a better relationship between the retailer and the customer,” said Walmart U.S. CEO John Furner at an investment conference this month.
“Part of the capacity investments, obviously, are to be able to serve more customers in all the channels.…So it is important that these capacity improvements happen at a fast pace so that we can add more customers into the proposition,” he said. “But having digital relationships with customers over the long term, where we can do what we do in many locations now or a few locations now as to build customers and keep them in stock and replenish them at home is a really important part of the puzzle.”
Translation: The race to the future of retail isn’t over, it’s just getting started.