Earnings Season Teases Retail’s Next Normal

One Covid-era silver lining could be accelerated digital transformation, a central premise of Street Fight’s August editorial theme, the next normal. Local businesses are scrambling to survive, which is forcing them to discover new tools and form new habits that will stick with them in the long term.

The result will be years of digital transformation fast-tracked into six months. We’re seeing this principle manifest in Covid-era demand signals and behavioral shifts. For example, dynamic variables like hours of operation and mask policies compel better local listings and social media optimization.

Another area seeing rapid adoption is e-commerce, which includes locally fulfilled transactions like QSR order-ahead and retail curbside pickup. As we recently examined, these are a few technologies that inflect in 2020 as local businesses move e-commerce to the front burner, where it will likely stay.

The data substantiates all the talk about this rapid digital transformation. Joining the sheer growth in consumer e-commerce spending, new data from IBM’s U.S. Retail Index indicates that retailer e-commerce adoption has jumped forward five years.

Can a Pandemic Inflect Local Commerce Tech?

Earnings results that rolled out from retail giants over the past week further demonstrate what our next normal will look like. Specifically, Walmart and Target both hit record numbers. This is partly a function of Covid-era circumstances but also due to each retailer’s active e-commerce momentum.

Target’s Q2 earnings beat Wall Street expectations and set several new records for the company. This includes the fact that it had its strongest quarter ever with $23 billion in revenue (up 24.3% year-over-year) and $1.69 billion in net profit (up 80.3%).

The growth driver was online ordering, which saw a 195% top-line jump. Same-day services grew 273%, which includes delivery and curbside pickup. Notably, these are digitally infused (cost-efficient) and high-margin fulfillment models, which logically feed into the above growth in profits.

Target has refined these logistical systems as an early adopter of techniques like curbside pickup, which the retailer implemented long before Covid-19 struck. Now that it’s gotten the taste of those unit economics, we can expect it to double down. The only remaining question mark is long-run consumer demand for same-day services.

Walmart also invested long before the pandemic in online ordering for local delivery and pickup. It offers grocery pickup at 3,450 locations and same-day delivery at 2,730 locations. Since the pandemic first struck, it’s scaled this up by expanding pickup windows by 30%.

So just like Target, Walmart hit the ground running in the Covid era, and its earnings likewise indicate that. Q2 sales jumped 97% year-over-year to $137.74 billion, beating estimates of $135.48 billion. Net income also rose year-over-year to $6.48 billion ($2.27 per share) up from $3.61 billion.

Can a Pandemic Inflect Local Commerce Tech? Part II

Part of this growth can be attributed to the pre-Covid rollout and subsequent growth of Walmart’s Delivery Unlimited service. Similar in some ways to Amazon Prime, subscribers pay $12.95 per month (or $98 per year) to order groceries online without a per-order fee.

Similarly, Target announced subsequent to its earnings call that it’s rolling out its grocery pickup feature nationwide. First launched in the Midwest, it has ramped up to 1,500 stores, which is about 85% coverage. It will close the loop on the remaining portion in the next few months.

Stepping back, the above numbers come with the caveat that both retailers had “essential business” designation, making them go-to destinations with reduced competition. Product categories driving growth — such as groceries — also align with shelter-in-place realities like home-cooked meals.

That aside, these earnings contain key signals. For one, they validate consumer acclimation to digitally infused local shopping. Second, other retailers and down-market businesses will look to replicate this success. This can all therefore be viewed as a leading indicator for retail’s next normal.

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Mike Boland has been a tech & media analyst for the past two decades, specifically covering mobile, local and emerging technologies. He has written for Street Fight since 2011. More can be seen at www.mikebo.land