The coronavirus pandemic (COVID-19) will haunt management of Walmart and Target TGT forever. Both companies cancelled their earnings guidance since nobody knows how long the scourge will keep us rooted to our homes. The situation created an extraordinary opportunity for each of them as they faced an invasion of customers looking to stay supplied with necessities and basic goods.
As a result, it’s no surprise that net sales and operating results were significantly affected by the coronavirus pandemic. There was unprecedented demand for products which resulted in strong top line results. In the domestic Walmart stores, the impact came early and stayed strong, driving comparable store sales increases of 10%. Strongest sales were in food, consumables, health and wellness. Some general merchandise categories were also in demand. The demand was so great that Walmart hired 235,000 new associates to help.
In contrast, Target felt the rush only when customers received their stimulus checks from the Federal Government; their store sales increased sharply starting in mid-April. Target fulfilled 80% of e-commerce orders in their stores. Comparable store sales increased only 0.9% in the first quarter of 2020, but e-commerce sales jumped 141%. That huge gain generated an overall 10.8% increase in the quarter. Food and beverages rose over 20%, essential and beauty 10%, and home rose in the single digits.
Walmart’s e-commerce sales grew by 74%. Again, the company cited strength in grocery pick-up and delivery services, and its marketplace. Because of the strength of Walmart.com, management is discontinuing Jet.com – a move that was anticipated.
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For the record, necessities ran out for Walmart, like at all other competitors, since the customer was hoarding in case, they could not get anything anymore. It was a phenomenon that could be felt in most grocery stores – from Costco to Kroger KR to Safeway. People who were panicked cared about themselves and adopted an ‘every man for himself’ attitude that cleared the shelves and left nothing for their neighbor. While toilet paper has not been available on the internet from Walmart (or many of its competitors), some of it is now showing up on e-bay as people realize that they will never use up all the toilet paper that is piled up in their closet.
Both Walmart and Target were on the forefront in providing support for their customers and are making more loyal friends in the process. Here are some examples of programs Walmart has offered.
· Walmart launched express delivery in the U.S. to allow customers the option of having their orders delivered to their door in under two hours.· It added more slot capacity in the United States for existing pickup and delivery services.
· The company also expanded “ship from store” options for orders placed on Walmart.com to 2500 stores.
· Sam’s Club got some boost by being on the forefront with a concierge service for seniors and those most at risk. At the same time, there have been “hero hours” at Sam’s Club for those men and women who serve on the front lines.
· Some of the same ideas are being introduced in Mexico and China. In Mexico, same day delivery service is being introduced at Sam’s Club and pick up is now available in China.
Associates of both Walmart and Target were rewarded with extra bonuses for their dedication and hard work. Fulfillment centers have a special temporary pay increase of $2.00. A COVID-19 emergency leave policy was created by Walmart, who also implemented an option for associates to have access to their wages weekly.
At the end of the first quarter 2020 Walmart reported a sales increase of 10.5% from $80.3 Billion to $88.7 Billion in their domestic division. Walmart International WMT had a 3.4% increase, from $28.8 Billion to $29.9 Billion. Sam’s Club reported a 9.6% increase from $13.8 Billion to $15.2 Billion. The whole company reported an 8.6% increase from $123.9 Billion to $134.6 Billion. Earnings per share rose from an adjusted rate of $1.18 to $1.40.
At the end of the first quarter 2020 Target reported revenue growth of 11.3% from $17.6 Billion to $19.4 Billion. However, net earnings slid from $795,000 to $284,000 and fully diluted earnings fell from $1.53 to $0.56.
Why were the bottom line results so different? What happened? It is clear that Walmart had constant traffic during the two pandemic months, whereas Target only benefited from the stimulus distributed in April by the Federal Government. Many of the other earnings reports that are now coming daily show the same result. Walmart’s fast delivery and prompt response to customer needs is reflected in the purchasing momentum the company enjoyed from the very beginning. I think that Walmart has had greater impact for the consumer and stands to continue to be strong into the future. It is likely that on-line sales will continue to flourish in the years to come while we worry that many stores may close because of lack of profitability.