Q2 2020 Results: Digital Still Dominates As Consumers Reduce Shopping Trips

Elroy Mariano

Retail’s Q2 2020 financial results saw a continuation of the trends that companies have been seeing for months: staggering upticks in online spend, greater interest in buy online, pickup in-store (BOPIS) and curbside services and a continued shift away from mall-based retailing. The results also reflect the trends that will […]

Retail’s Q2 2020 financial results saw a continuation of the
trends that companies have been seeing for months: staggering upticks in online
spend, greater interest in buy online, pickup in-store (BOPIS) and curbside
services and a continued shift away from mall-based retailing. The results also
reflect the trends that will gain momentum as the pandemic continues: continued
growth of online and omnichannel services, a growing appetite for alternative
entertainment and new innovations in customer service.

“I think this quarter is a story of two sides of a coin, a continued of polarization of economic winners and losers,” said Hilding Anderson, Senior Director of Strategy & Consulting at Publicis Sapient in an interview with Retail TouchPoints. “You see companies that invested in digital transformation now for months, or years in some cases, really pulling out ahead. Then you see companies that have been slow to adopt digital technologies really facing an uphill battle to get the growth that they need in these times.”

Some companies are still doing well despite a relative lack
of e-Commerce infrastructure, but even they are expected to level up as
consumer behaviors continue to evolve. For example, discount grocers have
remained strong for the past decade — even with their old-fashioned approaches
to brick-and-mortar. In the most recent quarter Dollar General reported
a net sales increase of 24.4% and a same-store sales increase of 18.8%.
Their positioning may limit the urgency, but these retailers still recognize the
potential of online services.

“It’s not to say that you can’t run a business without
really robust online presence, but when e-Commerce moves from 2% to 40% of your
revenue, it places a different level of emphasis on executing on that portion
of your strategy and your business,” said Anderson. “If they haven’t invested
there yet, I guarantee you they’re having these conversations and will invest
significantly in these offerings, at least for in-store pickup.”

Data-Driven Strategy Helps Outdoor Retailers Maximize

Retailers riding current consumer trends can make the most
of the moment by investing in omnichannel services. Outdoor retailers saw
significant momentum in this area, especially as consumers sought goods to
support new activities and healthy habits: DICK’S Sporting Goods
exceeded expectations with 20.1% net sales growth, driven by a 194%
increase in digital transactions, including BOPIS.

“I think that the outdoor sector really has focused around
the brands’ digital experiences,” noted Anderson. “A lot of these leaders now
have a significant direct-to-consumer offering, they’ve invested heavily in
digital and they have a flexible, digitally savvy target customer. All of those
factors come together in a way that makes them really easily capture the growth
in digital and changing consumer behavior.”

Anderson expects the coming years to be the “decade of the
algorithmic retailer,” and DICK’S recent success can be attributed to its
data-driven capabilities. The retailer has harnessed personalization and other,
less customer-facing technologies to improve the shopping experience —
and these investments are paying off.

Electronics Stand Strong As Entertainment Budgets Shift

Even though people want to get outside, their day-to-day
entertainment is still limited to what they can use at home, making electronics
a strong sales driver. Retailers like Best Buy are reaping the benefits:
the company reported a 5.8% increase in same-store sales and a massive 242%
increase in online sales for the quarter. While the early parts of the pandemic
were defined by sales of home office essentials, Q2 results were driven by the
need for indoor recreation.

“We’re seeing a shift in consumer spend from going out and
having experiences to things like gaming, upgraded televisions, projectors and
electronics in general,” said Anderson. “It’s not so much in the context of,
‘Hey, I need to update my home office.’ That’s mostly done, though it will stay
at a higher level than it was the past — but rather based around, ‘Where am I
spending most of my time?’ As you look at winter with COVID-19 still a major
issue across a lot of the U.S., I would expect to see that electronics spend

The imminent launch of next-generation consoles such as the PlayStation
5 will ensure that electronics sales remain strong, according to Anderson. The
new units will offer a “disruptive level of performance” compared to current
consoles, which will generate huge amounts of interest among shoppers.

Apparel Still Struggles, But A Digital Approach Can Help Close
The Gaps

One sector that struggled in both Q1 and Q2 was apparel. Between
heavy exposure to malls, reliance on a tactile shopping experience and the fact
that working from home has made fashion a secondary concern for many customers,
clothing retailers faced heavy headwinds during the latest quarter.

One of the retailers hit by the current atmosphere was Nordstrom:
the retailer reported a 53% sales decline due to temporary store
closures for approximately half of Q2 and the postponement of its annual Anniversary
Sale until Q3.

“Nordstrom is a company that really prides itself on
customer service and that interaction in the store is a huge part of the value
proposition that they bring,” explained Anderson. “At some level I’m not
surprised that if your shoppers can’t go in and see their personal shopper,
your sales are going to diminish. Plus, I think there are some broader shifts,
especially among white collar workers, with a large percentage of people
working from home. When you’re not going to the office and all you need is a
sweater for your Zoom calls, that directly impacts other offerings, and shoes
and other sectors have been important for Nordstrom.”

Online and omnichannel offerings can still help apparel
brands — even in the face of sector-wide challenges. While Nordstrom’s digital
sales were also down 5%, the retailer noted that they were actually up 20%
year-over-year when accounting for the delayed anniversary event. Apparel will
need to embrace the same digital future as the rest of the industry, and while
it may prove difficult to match in-store customer service online, finding the
right approximation will be key to the sector’s continued success.

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