The nation’s large retailers are feeling pinched by reductions in store sales, as fewer consumers are visiting malls, and at least one them – Target Corp. – is getting over the impact of a major data breach that left many customers concerned about their data security.
Unseasonable weather in February played a factor during the most recent reported quarter, but increasingly budget-conscious consumers, still getting over the worst recession in recent memory, are turning more to online shopping for better deals. As such, more sales are being completed online.
Last week, Walmart reported a 0.1 percent drop in U.S. sales, excluding new or closed stores, for the quarter ended April 30. Company executives said consumer financial concerns continued to affect sales. “Fundamental dynamics haven't changed, and household incomes are still flat," said Bill Simon, Walmart's U.S. president. "As we head toward the political season and rhetoric heats up, it will continue to challenge consumer confidence."
Kohl’s similarly reported a drop in same-store first-quarter sales, by 3.4 percent. Wes McDonald, the company’s chief financial officer, acknowledged the company wasn’t alone, noting the difficulty in building sales across the entire retail industry. "I don't think anybody is going to knock the cover off the ball,” he said.
During a conference call to discuss the company’s earnings on May 21, Target executives expressed confidence that much of the breach-related impact on sales is diminishing.
“Our U.S. segment comparable sales decline of 0.3% was near the upper end of our guidance and reflects meaningful improvement from trends we were experiencing shortly after the breach,” Kathee Tesija, Target chief merchandising and supply chain officer, told analysts. “When we survey consumers, we increasingly hear they have put the breach behind them and are resuming their target shopping habits.”
To help improve sales generally, Target is working quickly to drive more newness in its merchandising and presentation, John Mulligan, Target chief financial officer and interim CEO, said on the call. The company also is looking to accelerate its digital transformation and become a leading omnichannel retailer, he added.
“To do this, we will move more quickly to become more flexible in how we serve our guests, eliminating barriers that prevent them from shopping with us where and when they want,” he said. The company also is increasing its in-store promotions to help drive traffic.
During the quarter, first quarter comparable sales were strongest in hard lines, driven by a mid-single-digit increase in electronics, which continues to benefit from strong trends in mobile, Tesija said.
In the U.S., comparable traffic was down a little more than 2%, which was nearly offset by a 2.1% increase in basket size, Tesija said. “Within the average basket, we saw an increase in both units and average retail, reflecting our continued success in attracting guests to add more items to their cards and trade up to higher price points,” she said.
Digital visits were up more than 20% from a year earlier, Tesija said. “The share of digital visits from a mobile phone or a tablet continues to grow, and in the first quarter, almost two-third of our digital traffic was on one of these devises,” she said.
Conversion rates on both conventional and mobile sites improved, Tesija added. “The combined benefit of traffic and conversion improvements drove first quarter digital-channel sales up more than 30% from last year,” she said.
Various pilots are underway where Target is testing different delivery methods to help keep up with market-demand changes. The company is testing store pickup of online-purchased items with staff in Minneapolis, and it plans to expand that test in June to include customers, providing $10 rush delivery in Boston, Minneapolis and Miami, Tesija said. “Based on our team-member response and the feedback that they gave us, I think that this will also resonate with our guests,” he said.
Target also going to be adding standard shipping from 135 stores and about 38 markets, accommodating one to two day delivery, Tesija said.
In the US, Target expects a slow improvement in sales trends, suggesting second quarter comparable sales should be flat to slightly positive, Mulligan said.
To learn more about the changing retail environment, be sure to check out the omnicommerce tracker.