It’s a good time to be a retail chain.
The second quarter earnings season has brought a flow of positive financial news from the likes of Target (massive growth in store-based foot traffic), Macy’s (a third consecutive quarter of same-store sales growth), Walmart (grocery, apparel, seasonal goods and eCommerce boosted revenue) and Nordstrom (its Nordstrom Local concept is gaining steam).
“Like others, we’re currently benefiting from a very strong consumer environment, perhaps the strongest I’ve seen in my career,” said Target CEO Brian Cornell during the chain’s Q2 earnings call.
Retail is on the ascent. In July, retail sales increased 0.5 percent, and grew 6.4 percent from a year ago, according to the U.S. Department of Commerce. Economists had only forecasted retail sales going up 0.1 percent in July.
Also in July, auto sales increased 0.2 percent, while sales at clothing stores rebounded 1.3 percent after declining 1.6 percent in June. Service stations saw receipts that went up 0.8 percent, online and mail-order retail sales increased 0.8 percent, and spending at restaurants and bars increased 1.3 percent.
The boost in consumer spending is due to a tightening labor market, which is gradually pushing up wages. In addition, tax cuts and higher savings are also playing a role in the rise in retail sales.
“Wages are up. Employment is up. Interest rates are low. So, it’s really a very good economic time for consumers,” Paul Hogan, a portfolio manager and analyst at Fenimore Asset Management, told The Wall Street Journal. More evidence of that comes from the SPDR S&P Retail exchange-traded fund, which “has tacked on 16 percent this year, including 5.6 percent in August alone.”
Not every retailer is experiencing good times, of course. The long death spiral of Sears continues, with the merchant announcing it would close 46 more Sears and Kmart locations, after already closing 72 stores earlier this year. The retailer’s stock price has dropped nearly 85 percent this year as sales and foot traffic disappear.
And, no matter the good news coming out of the second quarter, brick-and-mortar retailers still trail Amazon, whose stock price has increased more than 60 percent. According to MKM Partners, Amazon could hit $2.5 trillion in market cap by 2024, fueled by the increasing importance of advertising revenue for the eCommerce operator, along with the continued role of Amazon Web Services. Earlier this month, Apple became the first U.S. company to pass the $1 trillion market cap threshold.
Some retailers have decided that working with Amazon is the right path.
That notably includes Kohl’s, which has launched Amazon return stations throughout its Milwaukee stores, expanding on a partnership that started last year. The service started at 82 Kohl’s stores across the Los Angeles and Chicago areas. The recent addition of 21 stores in Milwaukee means that just over 100 Kohl’s locations now participate in the service.
After an Amazon customer returns an item to Kohl’s, it will package and ship the items back to an Amazon fulfillment center — free of charge for customers. To make the program even easier, Kohl’s will reserve parking spots near store entrances for Amazon customers only there for a return.
Kohl’s has found success. A study from Gordon Haskett Research Advisors, and based on 13 locations, found that the Amazon returns program produced an 8.5 percent increase in traffic, with 56 percent of those customers either new or returning to Kohl’s after a lengthy absence.
Target has a different tactic to gain more customers and compete against Amazon: curbside pickup. The chain has already reported a 10 percent increase in orders that include curbside pickup, which is expanding to more locations.
Walmart, too, offers the service, and it might have an edge when it comes to surviving, and thriving, in a retail world dominated by Amazon. Former Walmart CEO Bill Simon thinks that Walmart’s big brick-and-mortar network of stores gives it an underrated edge against Amazon in a multichannel world where consumers want smooth online-to-offline commerce experiences.
New store concepts are also working in favor of retail chains as consumer spend more, as demonstrated by the proliferating Nordstrom Local store concept. Those locations offer relatively little inventory, but do offer other features — communal work tables, seamstresses, pop-ups, refreshments — that appeal to consumers. The locations are built more around services than item selection.
Even the concept of the mall is finding new life.
The vacancy rate at malls around the country hit 8.6 percent in the second quarter, marking the highest level since 2012. But now, some developers, retailers and entertainment producers believe that immersive destinations could potentially fill millions of square feet of empty retail space.
For instance, Two Bit Circus, a futuristic “micro amusement park” set to open next month in Los Angeles, has raised $21 million from investors including Intel and CJ CGV, a Korean movie-theater company. Two Bit Circus is in discussions “with all of the biggest mall developers in the U.S.” to lease space for future locations, said co-founder Brent Bushnell.
Although Amazon continues to expand, and the threats of expanding trade wars and recession loom, chains are at least gaining some breathing room to figure out how to combine physical spaces and digital services.