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Q3 2021 Roundup: Major Players Shake Off Supply Chain Woes but Challenges Remain

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Retailers saw strong results overall in Q3 2021 as the recovery continued, but supply chain shortages loom as they enter the holiday season. Large retailers like Walmart and Target prepared well in advance and expect momentum to carry them forward, and Lowe’s and The Home Depot are still benefitting from strong interest in home improvement. However, even though Victoria’s Secret posted positive Q3 results, the company warned that a significant portion of its Q4 orders had been delayed.

Walmart posted 9.2% comparable sales growth and 8% ecommerce growth during Q2 2022, which aligns with calendar Q3 2022. Solid results are the norm from the retail giant, and the company believes this level of performance will continue into the holiday season.

“Despite the various macro and industry challenges, our inventory position is good,” said Brett Biggs, EVP and CFO of Walmart on an earnings call with investors. “Stores and fulfillment centers are well staffed and our price position remains strong. Customers should expect to find the items they want [at] great values.”

Notably, Walmart didn’t kick off the holiday shopping season with October promotions like many other retailers, including rivals Target and Amazon. The company will offer Black Friday deals across the month of November, but Biggs told CNBC that the company hasn’t seen enough early shoppers to “pull forward significant demand into the third quarter.”

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Target saw 12.7% comparable sales growth led by 29% digital growth in Q3, bolstered by Halloween, back-to-school and some early holiday shopping. Like Walmart, Target is secure in its holiday position and upped its forecast from high single-digit growth to between high single-digit and low double-digit growth.

Target is preparing for the future, as well as fighting current last mile woes, by fulfilling more and more orders from its stores. The retailer fulfilled 95% of digital orders from stores during Q3 and announced plans to add permanent storage capacity at more than 200 high-volume stores, introduce “flexible fixtures” to bolster storage during seasonal peaks and double the number of parking spots for curbside pickup.

Both retailers’ shares fell shortly after their results were released despite the positive outlooks: Walmart shares closed down 3% on Nov. 16 and Target shares closed down 5% on Nov. 17, according to CNBC. Both companies have been absorbing the rising costs associated with shipping and labor in a bid to maintain customer loyalty, but some investors feel they could increase prices to take advantage of the holiday surge without scaring away customers.

Home Renovation Interest Remains High in Q3

Lowe’s 2.2% comparable sales increase may seem small compared to the growth at Walmart and Target, but analysts expected a sales decline for the home improvement retailer. The increase was attributed to shoppers’ continued interest in home projects, which also led to a 6.1% comparable store sales increase at Home Depot.

Home Depot noted that the retailer is continuing to see “customers taking on larger home improvement projects.” That’s leading to even more significant sales growth to professional contractors, which outpaced the retailer’s DIY sales. The retailer also believes it is up to the task of maintaining growth despite the challenges facing retail.

“These results were driven by our associates to maintain their relentless focus on our customers while simultaneously managing industrywide supply chain disruptions, inflation and a tight labor market,” said Craig Menear, Chairman and CEO of The Home Depot on an earnings call with investors. “While these factors present challenges for retail as a whole, we will use our experience tools and our scale to manage through this environment with the intent to deliver a strong value proposition to our customers.”

Lowe’s is building on interest in improvement projects with the launch of Lowe’s Livable Home, a platform that will offer expertise, services and products for older customers. The effort will enhance in-store support and offer more services to Baby Boomers looking to age in their own homes, educating them on available options and connecting them with contractors who can install features like low-threshold showers.

Victoria’s Secret Spills the Beans About Supply Chain Challenges

Victoria’s Secret’s first post-spinoff quarter was promising: sales rose 7% compared to Q3 2020, though they fell 9% compared to Q3 2019 due to the closure of 260 locations. In-store sales rose nearly 22% year-over-year, but DTC sales fell 13.5%.

“Our work to transform our brand, deepen our customer connections and improve our operational fundamentals is gaining positive traction,” said Martin Waters, CEO of Victoria’s Secret in a statement. “We continue to improve our merchandise assortment and expand our already strong customer file. I’m proud of the commitment and resilience demonstrated by our teams, who delivered these results in challenging circumstances, and in doing so are demonstrating the power of a healthy culture. We continue to monitor global supply chain issues and believe our close partnerships with our vendors and our work to get ahead of the curve will help mitigate those challenges.”

Like many retailers and DTC brands, Victoria’s Secret will have its work cut out for it when it comes to navigating the supply chain: 90 million of the 200 million SKUs the retailer ordered for Q4 have been delayed, Waters said on an earnings call with investors. The retailer is reworking its plans to bring in 90% of the merchandise by air, but that product could still take nine days to arrive, as compared to the usual two-day air delivery timeframe.

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