The Supply Side: ‘Super retailers’ see fewer shopping trips, longer visits

This year has been challenging for super retailers Costco, Target and Walmart. Through the first half of 2023, the financial contrasts between the companies were stark, as are the predicted results for the back half of the year, according to a report from analytics firm Placer.ai.

The report indicated early in 2023 that Costco and Target outperformed the broader retail sector in better year-over-year growth, with in-store visits at 1.2% and 3.1%, respectively. Walmart’s foot traffic was behind its peers to start the year up only 0.9% from the year-ago period. But Placer.ai also noted that Walmart began to pick up steam late in the second quarter while the competitors’ store visit counts were slowing.

Placer.ai reports that Walmart remains the largest retailer in the U.S. with the most overall superstore visits, but the share of visits looks to have shifted in the past few years. Walmart’s visit share shrunk from 55.2% to 50.6% between early 2019 and 2023. Target grew its share of store visits from 16.8% to 18.7% in the same period. Costco grew its share of visits from 9.8% to 10.3% during the period. The report also found the dollar store category also saw store visits increase from an 18.2% share to 20.4% in the past four years.

“The redistribution of store visits suggests that while Walmart and its massive store fleet still dominate the segment, other brands have been increasingly carving out a larger piece of the retail pie for themselves,” the report noted.

As Walmart has reduced its store count over the last four years, Target, Costco and dollar stores have added locations. Still, over half of the superstore visits that occurred in the first half of 2023 were at Walmart, according to Placer.ai.

FINANCIAL DEMOGRAPHICS
Since inflationary pressures have constrained household budgets, a shift in consumer mindset has also helped Walmart more than some of its competitors, given that more than 56% of total sales come from groceries and consumables.

The report found that each of the super retailers also tended to serve specific audiences, with Walmart’s core customers earning less than those who frequent Target and Costco. Walmart has said it attracts more higher-income households who want value and convenience. Still, Placer.ai data suggests Walmart captured the $53,100 average household market. At the same time, Target’s core customers earned an average of $68,800, and Costco members’ average household income was $78,000 in the first half of this year.

The report also found that Target is well known for its beauty section, while Walmart is a bargain hunter’s dream. The information also recorded crossover shopping as Costco members showed an affinity for off-price apparel and tended to frequent TJ Maxx and other discount chains.

Walmart’s clientele tended to also shop at Dollar General and Family Dollar, while Target customers spent time at Ulta and Bath & Body Works at higher rates than visitors of the other two chains, the report stated.

IMPACT FROM HEALTHCARE
Walmart and several of its competitors are investing in health services. Target has farmed out its health services to CVS, which runs the pharmacies inside Target stores. Walmart chose to build clinics next to stores in underserved regions. Walmart has nearly doubled its healthcare clinics this year with 28 new sites. By year-end, Walmart will have over 75 clinics open in Arkansas, Arizona, Florida, Georgia, Missouri and Texas.

Scott Benedict, a Northwest Arkansas-based affiliate partner for retail consulting firm McMillanDoolittle in Chicago, said healthcare is a natural extension for Walmart given its massive pharmacy business. He said pharmacies are becoming more critical in mainstream retail given the expanded role of pharmacists to test and treat walk-in patients with common ailments such as flu or sore throat. He said pharmacies and health clinics are traffic drivers for retailers, and even though Target does not operate pharmacies, it still benefits from the pharmacy and expanded healthcare services provided by CVS Health.

Placer.ai found that Walmart and Target benefited from increased healthcare clinic visits. In Texas, stores with Walmart Health Clinics saw a 14.8% uptick in in-store visits in the first half of this year compared to stores without clinics. There was a 12.5% gain in Georgia, an 11.8% uptick in in-store visits in Arkansas and 6.2% more in Florida, where health clinics were located.

Target had 28% more average visits in Minnesota stores with clinics than those without health services. The gain in Virginia was 22.1%, 21% in Florida and 14.4% in California, according to the Placer.ai data.

MISSION-DRIVEN SHOPPING
The report also noted that Costco had the most to lose with its bulk-shopping model, given that consumers are shifting to more cost-effective and mission-driven shopping trips in the face of higher fuel costs and sustained inflationary pressures on prices of goods and services.

However, Costco, Target and Walmart each saw average visit frequency fall in the first half of this year. Walmart was down 3.7%, Costco was down 4.1% and Target was down 1.7%.

Shoppers made fewer trips to the super stores, but the time per shopping trip increased. All three retailers reported a larger share of shoppers who began shopping at home via browsing or ordering online for store pickup or delivery.

The second half results are shaping up to be different for Target and Walmart, with Costco somewhere in the middle. Walmart blew the doors off its second-quarter earnings and raised its full-year guidance behind solid same-store sales growth of 6.4% in its U.S. segment and a 24% gain in e-commerce sales.

“We are positioned for growth,” Walmart President and CEO Doug McMillon said. “They’re shopping with us across channels — in stores, Sam’s Clubs, and they’re driving e-commerce, which was up 24% globally. Food is a strength, but we’re also encouraged by our results in general merchandise versus our expectations when we started the quarter.”

Target missed earnings estimates in its second quarter results reported Aug. 16. The retailer cut its full-year sales and profit forecast amid shoppers more closely watching their wallets.

Target offered a gloomier outlook even as some top economists have scrapped calls for a recession and government data shows that inflation is slowing.

“As we look at the consumer landscape today, we recognize the consumer is still challenged by the levels of inflation that they’re seeing in food and beverage and household essentials,” Target CEO Brian Cornell said recently. “So that’s absorbing a much bigger portion of their budget.”

Costco will report its fiscal year-end results on Sept. 26, but through three quarters of this year, the three super retailers reported U.S. comp sales growth of 4.7%, excluding fuel sales. E-commerce comp sales were down 6.6% on an adjusted basis.

Costco management said in June that consumer spending is down in its clubs, which is typical in times of economic struggle. Costco CFO Richard Galanti noted that consumers are trading down to less expensive food choices. He said the trend historically has happened as the U.S. slipped into past recessions.

Editor’s note: The Supply Side section of Talk Business & Politics focuses on the companies, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is managed by Talk Business & Politics and sponsored by Firebend.