Digital Retail Investments Are Paying Off In Q3

As the year winds down – and holiday shopping picks up – clarity is emerging about which retail investments might pay off in the new decade, and which merchants might be in trouble.

Investors this week were disappointed in retail earnings from the likes of Home Depot and Kohl’s, “raising fresh doubts about whether American consumers can keep up robust spending as the crucial holiday season approaches,” according to an account from Bloomberg. “The two retailers cut their annual forecasts for the second time this year. While the companies blamed shortfalls on specific issues – including lumber prices at Home Depot and lower demand for women’s apparel at Kohl’s – the weak results sent jitters across an industry that has been scrutinized for any sign of weakness amid a record streak of economic growth.”

Even so, some of the most recent earnings from the retail sector indicate that some investments in emerging areas of commerce are paying off. Take retail chain Target as one example. Offering a “safe haven” of sorts after multiple retailers unsettled investors, Target Corp. in its Q3 earnings increased its full-year outlook on profitability as well as strong sales. Online sales reportedly jumped 31 percent in the quarter, yet eCommerce didn’t weigh on profitability as it has done in past periods.

Delivery Growth

Target’s online shopping investments, including the launch of curbside pickup and same-day deliveries, have bolstered sales and brought in new consumers who didn’t shop there in the past, while helping to keep Amazon at bay. The retailer has also doubled down on toys during the holiday season by fulfilling sales made on a relaunched Toys R Us website and bringing over 24 mini-Disney stores inside some of its locations.

There were even bright spots for Kohl’s amid the investor disappointment that came from the release earlier this week of the chain’s Q3 financials. In terms of digital, CEO Michelle Gass said in a call with analysts that the company is pleased with the momentum it sees. Digital sales rose at a mid-teens rate in the third quarter.

The executive noted that “mobile continues to be the primary driver of digital growth, with a particularly strong performance from the Kohl’s app.” Gass also pointed out that the Kohl’s app grew significantly quicker than digital overall during Q3, “with nearly double the traffic growth and nearly triple the sales growth as our loyal customers have increased their usage.”

When it comes to Amazon returns, Gass noted the company finished the nationwide rollout of the program late in Q2. “With the expansion of the program, consumer research indicates that customers are very satisfied with the service,” Gass said. “They find it simple and easy to use, and they intend to use it again.”

The executive noted that the program is driving incremental traffic to its locations, and the company is “particularly encouraged by the disproportionate amount of new customers.” She also pointed out that this holiday season will be the first with in-store Amazon returns across the country.

Digital Grocery

Walmart, too, provides a recent example of how retail trends are playing out as the new decade looms. One area concerns digital grocery shopping, certain to be an even bigger part of consumers’ daily lives in 2020.

“We continue to see good traffic in our stores,” CEO Doug McMillon said of the chain’s third-quarter 2019 results. “We’re growing market share in key food and consumables categories, including fresh.” And yet, McMillon’s remarks to analysts following the release were not a complete victory lap, as he observed that while eCommerce growth was strong in Q3, it was driven mainly by Walmart’s digital grocery operation.

“Our strength is being driven by food, which is good, but we need even more progress on Walmart.com with general merchandise,” said McMillon. “We’re mixing the business out better to achieve better margin rates, but there is more work to do. We’re committed to progress and building a larger, healthier eCommerce business. Our customers want that, our marketplace sellers want that and so do we.”

Walmart’s eCommerce efforts have been the subject of some speculation this fall, as its various struggles have been quite public. Reports indicated Walmart is on track to rack up about $1 billion in losses this year connected to their efforts to build a more robust eCommerce platform. After going on a startup-buying spree in the last few years – which included Jet.com ($3.3 billion), Bonobos, Eloqui, Moosejaw and ModCloth – Walmart has found all of their acquisitions to be unprofitable thus far. They even recently sold off ModCloth, reportedly at a loss.

No one said retail is boring, especially at this point in time – and what has transpired in the recently completed Q3 provides a foreshadowing of more changes to come.