The world’s largest retailer believes shopping has changed forever: Morning Brief

Myles Udland

Wednesday, November 18, 2020

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‘We're convinced that most of the behavior change will persist beyond the pandemic.’

Investors got two key pieces of retail data on Tuesday morning.

Early Tuesday, Walmart (WMT) released its third quarter results.

And this report outlined how resilient consumers have remained through the fall and also why pandemic-related changes to shopping habits are likely to stick around.

The company reported U.S. comp sales rose 6.4% during the third quarter, with most of this gain coming from e-commerce. Walmart said in its quarterly report that e-commerce — where revenues grew 79% in the third quarter — was responsible for 5.7% of this increase. Both online sales and orders placed online for in-store pickup are included in Walmart’s e-commerce bucket.

“Changes in customer behavior have accelerated the shift to e-commerce and digital,” Walmart CEO Doug McMillon said on the company’s conference call.

“We were well positioned to catch and ride these waves given our previous work and investments. Our e-commerce and omni-channel penetration continue to rise, accelerating trends by 2 to 3 years in some cases. We're convinced that most of the behavior change will persist beyond the pandemic.”

A big part of this new behavior is the consolidation of trips, whether these are to Walmart stores or any other. Average ticket sizes at Walmart rose 24% in the quarter while the number of transactions fell 14%.

And so the the rise of online and hybrid orders is serving as a boost to the company’s top line and creates the impetus for a further investment in keeping these sorts of behaviors in place. McMillon says the company is convinced many of these new shopping habits will last past the pandemic. But it’s also in the company’s interest to make this habit as attractive as possible for customers.

“When a customer shops [in-store] and online, they spend about twice as much, and they spend more in-store,” McMillon said on the call. “Those are pre-pandemic stats, we're not updating those at this moment. But it is important to remember, once [customers are] engaged in the digital relationship and they're shopping [with] us holistically like that, the value of that customer relationship goes up.”

The company’s new Walmart+ program aimed to take on Amazon’s Prime service is the natural outgrowth of these sorts of consumer trends. The pandemic also created the conditions for customers to more quickly — and en masse — try out new habits the entire retail sectors had touted for the better part of the last decade.

So while the eventual direction of retail’s modern form has been clear for some time, no retailer with the resources of a Walmart or a Target (TGT) or an Amazon (AMZN) is going to let this moment pass without helping customers permanently embed these new habits in their routine.

And the latest retail sales data from the government published Tuesday also shows why.

The October report on retail sales disappointed, with online shopping the only real standout. In a world where safety and value are primary concerns, meeting your customers online is the only durable way to stay in a growing part of American consumer’s budget.

“Consumers closed their wallets as the first chills of fall set in, with retail sales barely rising across October,” said James Watson, senior U.S. economist at Oxford Economics.

“This reading is one of the first signs that spending is set to struggle in the face of lapsing income support and a massive surge in virus cases across the U.S.”

By Myles Udland, reporter and anchor for Yahoo Finance Live. Follow him at @MylesUdland

What to watch today

Economy

  • 7:00 a.m. ET: MBA mortgage applications, week ended November 13 (-0.5% during prior week)

  • 8:30 a.m. ET: Building permits, October (1.567 million expected, 1.545 million in September)

  • 8:30 a.m. ET: Housing starts, October (1.460 million expected, 1.415 million in September)

Earnings

Pre-market

  • 6:00 a.m. ET: Lowe’s (LOW) is expected to report adjusted earnings of $2.00 per share on revenue of $21.23 billion

  • 6:30 a.m. ET: Target (TGT) is expected to report adjusted earnings of $1.60 per share on revenue of $20.72 billion

  • 7:50 a.m. ET: TJX Cos. (TJX) is expected to report adjusted earnings of 40 cents per share on revenue of $9.37 billion

Post-market

  • 4:05 p.m. ET: Sonos (SONO) is expected to report adjusted earnings of 15 cents per share on revenue of $298.71 million

  • 4:15 p.m. ET: L Brands (LB) is expected to report adjusted earnings of 11 cents per share on revenue of $2.67 billion

  • 4:20 p.m. ET: Nvidia (NVDA) is expected to report adjusted earnings of $2.58 per share on revenue of $4.42 billion

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