Trading Desk: We Knew Big Retail Was Suffering

Walmart (WMT) profit is tracking about 10% below last year. Target (TGT) saw 90% of its earnings evaporate in the face of inflation and shifting shopping patterns. They warned us. We knew this was coming.

And we knew this was coming years before the pandemic twisted the retail landscape. Big Box chains survived the lockdowns by teaming up with delivery services and routing essential purchases through their websites . . . but when the lockdowns ended, a return to business as usual wasn’t good enough.

Online retail is still expanding its share of the overall consumer marketplace. The pandemic accelerated our embrace of Amazon (AMZN) and other sites for groceries, clothing, furniture and a whole lot more.

Nonstore sales are up 20% in the past year, double the rate of all retail activity and practically double where it was back in 2018. These sites are once again cannibalizing brick and mortar, category by category and SKU by SKU.

To say it slightly differently, online shopping now accounts for about 15% of all retail activity . . . but 1 in 3 additional dollars spent compared to 2018 has gone online. This is still the tip of the shopping iceberg, but it’s growing a lot faster than the whole.

Investors know to buy the fast part. That’s where the disruption is in the consumer economy. And that’s where it was before the pandemic. Remember all the talk about dying malls?

The malls aren’t necessarily dying. But there are too many big box stores. TGT in particular is in trouble because the general merchandise category has slowed down a lot since the pandemic . . . we’ve already bought all the stuff we need and it hasn’t worn out or needed replaced.

WMT at least is a major grocer. Its online presence isn’t going away either. They don’t need DoorDash (DASH) to deliver grocery bags. In-house staff can do it cheaper and more efficiently.

I’ve been saying for years there will be three types of retail operation in the future. There’s the online group, led by AMZN. There’s the eternal mosaic of boutique stores powered by Shopify (SHOP) and other platforms.

And then there will be the last chains standing. That’s WMT. Maybe it’s Costco (COST), unless some diabolical genius forces the companies together. And it’s the grocery giants.

That’s it. There’s no room for TGT in that vision unless management figures out where it wants to go. There’s no room for department stores like Kohls (KSS) either.

Boutique department store concepts are a beautiful thing. Curate your stock, know your customer. But if you’re just selling stuff, you’re in trouble.