Target & Others Bracing for Coronavirus-led Demand Spike

The rapidly-spreading novel coronavirus has rattled the stock market and almost disrupted economic activities. As complete physical isolation is the sole key to contain the spread of the pandemic, governments across several countries are imposing lockdowns and curfews, in turn, halting multiple economic ventures. Likewise, several American retailers are temporarily closing their brick-and-mortar stores, or reducing working hours, or permitting employees to work remotely, leading to furloughs and job losses. In view of the uncertainty surrounding the crisis, few of these companies are even withdrawing their previously-issued guidance, pulling back dividends and halting share repurchases, drawing cash from revolving facility.

Amid such gloominess, big-box retailers are witnessing spike in essential goods’ demand, thanks to consumers’ panic-buying trends. As a result, demand for grocery, medicines, cleaning supplies, and related food staples are skyrocketing. As Americans are stocking up on essential commodities, companies are leaving no stone unturned to fill the shelves faster. Companies are teaming up with suppliers to replenish essential products, raising employees’ pay and benefits, curbing non-essential goods’ production while adopting cleanliness and sanitizing measures.

Impressively, a renowned general merchandise retailer Target Corporation TGT has prioritized its actions to resonate well with the prevailing crisis and chosen to cater to Americans’ burgeoning demand for essential commodities now.

Driven largely by the crisis-led demand, Target has been witnessing higher traffic and sales for Essentials and Food & Beverage for the past few weeks. Apparently, Target’s comps for the current month-to-date are up more than 20% than the prior year, thanks to Essentials and Food & Beverage comps growth of more than 50%. It has also shifted certain of its strategic plans, including store remodels and other projects. The company now plans to remodel roughly 130 stores in fiscal 2020, instead of 300. Also, it intends to open 15-20 small-format stores during the current fiscal year, down from its prior plans of 36. Again, the company has decided to hold for the moment the incorporation of fresh grocery and adult beverages into its Drive Up and Order Pickup services.

Due to volatility stemming from the pandemic-led crisis, management also withdrew its guidance for first-quarter and fiscal 2020. Meanwhile, the retailer’s Apparel & Accessories’ performance remained soft, as comps in this category tumbled more than 20% year over year. Management remains wary of the persistent decline in higher-margin discretionary items’ sales, which might erode margins. Nonetheless, in recognition of the contributions of frontline team members, Target has increased the minimum wage by $2 an hour until at least May 2. It has also decided to pay bonus to frontline team executives.

Apart from Target, other supermarket and grocery retailers, such as Kroger KR, Costco COST and Walmart WMT, to name a few, have been witnessing demand spike for essential goods amid coronavirus chaos. Major off-price retailers like Dollar General DG Dollar Tree DLTR are hiring temporary workers to support customers’ needs amid such tough times. While Dollar General announced plans to hire roughly 50,000 workers by April end, Dollar Tree intends to appoint 25,000 workers at its namesake and Family Dollar stores, and distribution centers in the United States to cater to the crisis-led demand spike. Walmart is also looking to temporarily hire 150,000 workers across its stores, clubs and distribution centers.

E-commerce king Amazon AMZN is not left behind either in such vital times. As an e-commerce channel emerging as a top gainer in the wake of social distancing and staying indoors practices, Amazon has announced plans to hire 100,000 warehouse and delivery employees. It also announced that it would raise the hourly pay of hired associates in the United States by an additional $2 through the next month. In addition, the company’s owned Whole Foods Market stores will dedicate an hour to serve only senior citizens to keep them safe from the ill effects of the disease.

COVID-19 has jeopardized the global economy, and the retail sector, in particular, remains under pressure. But, still in such hard times there are retailers who are trying all means to meet consumers demand and uplift employees’ morale.

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Target Corporation (TGT) : Free Stock Analysis Report
 
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