Analysts: COVID-19 challenges all retailers, will further divide winners and losers

The retail sector continues to reel from the impact of COVID-19 that has shuttered many stores and furloughed workers amid social distancing guidelines recommended by health and government officials.

Analysts Matthew McClintock and Bobby Griffin of Raymond James & Associates said consumer and investor sentiment favors digital retail leaders as the ultimate winner in a COVID-19 world. They base their assumption on information on how Nike was able to grow its digital business in China amid the COVID-19 crisis dated back to late last year.

They said Nike grew its digital business more than 30% in the third quarter, increasing more over the past few months, despite double-digit increases in physical retail traffic during the recovery taking place across China. They also report Lululemon is seeing changing shopper behavior with more adoption of digital channels during this crisis.

“We believe there are likely meaningful challenges towards fulfillment for many of these digital leaders and It remains unclear if consumers are as favorable to newly emerging digital capabilities from Target’s Shipt or Drive-Up and Walmart Grocery PickUp, as they were before,” the analysts noted.

They said the bulk of conversations regarding digital fulfillment for the last several weeks has largely been focused on the tried and true ship-to-home capabilities. They also expect buying online and picking up in-store could ultimately be a much more desirable fulfillment option to consumers than it was before the COVID-19 crisis.

The challenge with grocery pick-up at Walmart is there are capacity constraints for time slots and stores have seen unprecedented demand. Walmart clears out the time slots each day between midnight and 2 a.m. Anyone wanting to secure a time slot must log on very early or stay up late. Walmart gives time slots for the current day and one day out.

Talk Business & Politics tried for more than a week during daytime hours to book a pickup slot at any one of 10 stores in Northwest Arkansas. There were no time slots available. Talk Business & Politics was able to place an order online after midnight on Saturday evening (April 4) for delivery on Monday morning (April 6.) All but one of the items on the list was available, and there were two substitutions made in the $49 order which consisted mainly of fresh produce, bottled water, dairy and snack foods.

The Walmart personal shopper who delivered the order said the store’s online grocery orders had increased exponentially. She said on a normal day she would pick 130 items per hour filling 8 orders at a time. She said during the increased demand, she would have to pick 7,000 items per hour to fill the orders she gets in one day. She said the store doesn’t have enough of the large shopping bins and even though personal shoppers have been added they have to pick the orders in a grocery cart — two orders at a time — for decreased efficiency.

Raymond James analysts said retailers are struggling to meet the consumer demand but they applaud the efforts. Given the constraints with pickup, they said delivery times are increasingly more important to consumers than ever before.

“We note that the leading e-commerce player (AMZN) announced an ‘essential item’ policy on March 24 that stated it will stop accepting all other item orders from warehouses until April 5. Many retailers in our respective coverage universes have proactively communicated to consumers that they should expect delivery time delays,” the report states.

American Eagle told customers it was taking extra precautions to ensure the safety of its distribution center employees and shipping would be delayed. Costco said some deliveries that would have been 2-days could now take 5 to 6 days. Walmart has suspended its one-day delivery. Foot Locker also told consumers to expect extended shipping time and delivery times.

“We have recently noticed a wide range of expected delivery times across our respective coverage universes, which we believe will ultimately become a critical factor for purchase intent as consumers increasingly shop the e-commerce channel during the COVID-19 crisis,” the report states.

Raymond James conducted online orders from 28 retailers from Advance Auto Parts and Amazon to Target and Walmart. These orders were for diversified bases of five items per retailer. For orders placed April 6, they noticed the delivery times ranged from the next day from Auto Zone, Genuine Parts Company and O’Reilly Auto and it took as long as April 27 from Williams-Sonoma.

“There were some retailers that would not commit to a specific delivery time whatsoever on several times, including American Eagle and Tractor Supply. Delivery times also varied widely by items, with most stock up items (baby, pet food, laundry/cleaning, etc.) still seeing elevated delivery times,” the report states.

Raymond James said retailers with the fastest delivery times for general merchandise items were Advance Auto Parts, Auto Zone, Best Buy, Costco, Dick’s Sporting Goods, Foot Locker, Genuine Auto Parts, Home Depot, Lowes, Lululemon, O’Reilly Auto, Target and Walmart.

“We believe that ship-from-store capabilities are likely the single most important factor for many retailers to clear inventory levels during this unprecedented period of minimal consumer demand and store closures. We have noted several retailers call out this capability as a potential solution to the building inventory problem that is likely facing the retail industry in the back of this year. Lululemon said its RFID technology allows it to open some stores that are not available to the public but can efficiently manage e-commerce inventory fulfillment. We also believe American Eagle has a similar capability,” the report states.

The analysts said at Walmart some items such as certain sizes of laundry detergents were only available for in-store pickup versus the typical online and in-store offering.