US retail's digital divide widens as e-commerce revenue soars

Department stores in the US are struggling as more consumers flock to online stores and discount chains. But retail giants like Walmart, Target and Best Buy have stayed afloat, and even found success, by adopting e-commerce strategies and offering a
Department stores in the US are struggling as more consumers flock to online stores and discount chains. But retail giants like Walmart, Target and Best Buy have stayed afloat, and even found success, by adopting e-commerce strategies and offering a wide mix of online and offline options.PHOTO: AGENCE FRANCE-PRESSE

NEW YORK • Macy's is closing stores. So are JCPenney, Family Dollar, Payless ShoeSource, Victoria's Secret and Gap. On the flip side, Walmart and Target just reported their best sales growth in more than a decade.

America's retail industry is divided. As earnings season continues, it is becoming clear just how much.

On one side are the companies that have worked out online strategies to compete with Amazon, while also finding the right mix of products and services, like selling groceries, to keep shoppers coming to their stores.

Amazon is still by far the leader in e-commerce, but the likes of Walmart, Target and Best Buy are increasingly challenging its dominance in online sales.

They are using their physical stores to fulfil online orders - catering to shoppers' demands for instant gratification - and increasing their digital promotions.

Those efforts paid off last year, particularly during the holiday season. Walmart and Target just reported their best comparable year-over-year sales growth since before the financial crisis, bolstered in part by the growth of their online operations.

Walmart's digital revenue rose 40 per cent last year, and the company is now the US' third-largest online retailer, according to data from eMarketer.

The chains' performance is tied in part to the struggling malls that their stores often anchor. Many of those shopping centres have been hollowed out in recent years and have failed to keep up with the changing tastes and buying habits of American consumers.

Target's e-commerce revenue increased almost as much. The company said about 75 per cent of its online sales during the fourth quarter were fulfilled in stores.

Best Buy's turnaround maintained its momentum last year. The electronics retailer's comparable sales growth over the past two years is its highest in more than a decade.

The three companies also benefited from the struggles and store closings of retailers like Toys 'R' Us and Sears.

Then there are the laggards.

Investors had high hopes for department stores like Macy's, Kohl's, JCPenney and Nordstrom last year. The economy was strong, consumer confidence was high and shoppers had extra money to spend as a result of tax cuts.

Shares of the four department store chains rose more than 30 per cent in the first half of the year, before succumbing to a broad market sell-off.

But their recent results show that some of the early hopes reflected in the stock increases were premature.

The chains' performance is tied in part to the struggling malls that their stores often anchor. Many of those shopping centres have been hollowed out in recent years and have failed to keep up with the changing tastes and buying habits of American consumers.

JCPenney reported declining sales for the holiday season, while Macy's warned that its sales are unlikely to increase much in the year ahead. Both companies also announced additional store closings.

Sales for two mall stalwarts, Gap and L Brands, the parent company of Victoria's Secret, also fell short of Wall Street's forecasts. Both companies announced that they would close more stores.

Nordstrom reported that comparable sales at its full-price stores had declined 1.6 per cent. But its results were lifted by another shift among consumers: a growing move towards discount chains. Comparable sales at Nordstrom Rack, the company's off-price store, rose 4 per cent.

One department store chain has managed to avoid the gloom. Kohl's same-store sales and forecast for the year ahead beat Wall Street's expectations. The reason: A partnership with Amazon to sell the Echo and other products from the e-commerce giant, while allowing Amazon customers to return purchases to Kohl's stores.

NYTIMES

A version of this article appeared in the print edition of The Straits Times on March 08, 2019, with the headline 'US retail's digital divide widens as e-commerce revenue soars'. Print Edition | Subscribe