Retail industry giants Target and Walmart continued to benefit from their status as essential retailers equipped with strong e-Commerce operational capabilities in Q2. In good news for their bottom lines, both retailers achieved significant sales growth, both online and in-store, while also improving margins.
Target achieved a record-setting 24.3% increase in comp sales for the three months ended Aug. 1, 2020, rising from $18.2 billion last year to $22.7 billion this year. Store comp sales increased 10.9%, but the most impressive growth was in digital comp sales, which grew 195%.
However, Target’s brick-and-mortar stores proved to be essential elements in the retailer’s overall growth, fulfilling more than 90% of the retailer’s Q2 sales. Same-day services, including order pickups, drive-ups and its Shipt subsidiary, grew 273% and accounted for approximately six percentage points of total company comp sales growth. Additionally, the retailer saw strong market share gains across all five of its core merchandise categories.
“Target’s Q2 performance obliterated the bullseye, with every line item vastly exceeding our expectations, resulting in first half performance actually improving from 2019 despite Q1’s very rocky start,” said Charlie O’Shea Senior Retail Analyst at Moody’s in comments provided to Retail TouchPoints.
O’Shea also noted that the retailer’s integration of its stores with digital sales and pickups “further validated the company’s store-leveraging strategy. All in all, Q2 performance results in significant improvement to Target’s credit profile, both over Q1 2020 and Q2 2019, and we expect favorable results to continue for the balance of 2020,” he added.
Walmart U.S. boosted its comp sales to $93.3 billion in Q2, a 9.3% increase compared to the same period last year, citing increased demand for products across multiple categories. U.S. e-Commerce sales nearly doubled, soaring 97% for the period ending July 31, 2020. The company’s total revenue, which includes contributions from Sam’s Club and its international division, reached $137.7 billion, a 5.6% increase over the previous Q2.
“The fact that margins actually expanded despite this massive increase in volume and significant COVID-19 costs provides validation that online-oriented operating costs are beginning to be rationalized,” said O’Shea. “It’s also an indication that there was some favorable mix shift away from lower-margin consumables and toward higher-margin general merchandise categories.”
Walmart also appears to be well positioned for growth even beyond the pandemic. “A key factor moving forward will be how many ‘new’ shoppers remain as ‘normalcy’ returns, and the explosion of Sam’s Club memberships for the quarter are a favorable sign in this regard,” said O’Shea. Sam’s Club increased its new memberships by more than 60% in Q2.