Show Transcript
Traditional brick-and-mortar retailers have been experiencing one of their worst years on record as a result of the pandemic. Kim Parlee speaks with Anita Bruinsma, Consumer Discretionary Analyst, TD Asset Management about how the important holiday shopping season is shaping up and why some retailers appear to be thriving despite the pandemic.
Print Transcript
- Bricks-and-mortar retailers have had one of the worst years on record. And with Halloween coming and being shut down in many places, that's really only salt in the wound for many retailers. So will the upcoming holiday seasons, not just Halloween but everything on the way, be a trick-or-treat? Here to answer that question is Anita Bruinsma. She's consumer discretionary analyst with TD Asset Management.
Anita, great to have you with us. I want to start with a chart that you gave to us. And if we bring it up, and it shows e-commerce retailers versus bricks-and-mortar, and you really couldn't, I guess, get a more divergent path between the two, could you?
Yeah, that's right. This is a great chart. And this is data that we actually look at every quarter. And what you're looking at here is US retail sales broken out by online versus in-store. And normally, we see pretty steady performance, but as you can see in the second quarter of this year, there was a dramatic shift from people shopping in store to moving online. Where online growth was up 45%, dramatic number. And in-store sales were down by 10% in the second quarter. And of course, this is because a lot of stores were closed, and also because people were just staying home.
And I think what this demonstrates is just how e-commerce has played such an important role through this pandemic. I mean, for one thing, it's delivered essential goods to those people who weren't able to leave their homes or couldn't leave their homes, but also it's helped to prop up total retail sales. So some of the sales that were lost in store were being done online because people were able to do that. So e-commerce got a big boost through this pandemic. And I think that this higher level of e-commerce spending is probably going to be here to stay.
- And I think it depends on the mix of the store. I mean, those obviously that weren't so skewed to e-commerce certainly are moving in that direction. I know you got another list here, and this one is amazing for all the wrong reasons.
- Yes.
- This is a list of retailers that have either declared bankruptcy or closed their stores. Is there light at the end of the tunnel for bricks-and-mortar stores?
There is definitely light at the end of the tunnel. I think though at this point we're still pretty deep in the tunnel. And the reason for that is just because foot traffic has been down significantly. So in the US foot traffic to malls is down 40% to 45%. And that's very, very dramatic for these bricks-and-mortar stores. And what's going to change this? I think is just what's the direction of the virus? What are the case counts going to be? What sort of actions are governments going to take to further restrict people's mobility and their activities? And then, of course, when do we get a vaccine? How widely is it distributed? And how comfortable are people going to feel about that vaccine, and then getting back out into the stores?
So I think probably by spring the worst is behind it for the bricks-and-mortars retailer. But the reality is that the next few months are going to continue to be rough. And we're probably going to see more companies being added to this list, those ones that are filing for bankruptcy protection and closing their stores.
- All right. Well, let's talk of the ones that are not on the list. I think in terms of Canada you've got Lululemon, Aritzia. In States, you've got companies like Home Depot and Target. What are they doing right, and can they continue doing it?
- I think there are two categories of things that some retailers are getting right, and why they're actually doing fairly well right now. So one of those things is that going into the pandemic, they were already well set up for e-commerce. And the other one is that they're simply in the right categories of goods. Because some categories are of course selling better than others.
So let's look at Lululemon, for example. Lululemon came into the pandemic with an excellent e-commerce presence, a great social media presence. So they've been able to make up some of those lost in-store sales, have been able to make it up online. Now Lululemon, of course, also has the amazing benefit of being in pretty much the exactly right category right now, which is athleisure wear, and athletic wear, as people are more active and they're capitalizing their wardrobe. So Lululemon's a great example.
Now another example, which might be a surprise to a lot of people is Aritzia. Aritzia is a Canadian, primarily women's apparel company, which is a highly discretionary category. But Aritzia also had a very good e-commerce presence coming into this, and has seen their online sales rise dramatically.
If we look at Home Depot, though, a very, very different company, in a very different story. Home Depot has benefited because of the category that it's in. So we've been reading a lot about how people have been renovating their homes, spending more money on their homes, getting to that long list of to-dos that they need to get done. So home improvement and home repair has been a massive category. And that's really been good for Home Depot. And in addition, Home Depot has been able to pivot a little bit in the pandemic by offering things like curbside pickup.
- A couple things I want to ask you if I can squeeze in. One is about alternative data, because I know you watch some. I'd like to know what you're watching. And then also, the outlook for the holidays. Are we going to see-- with people obviously not traveling still, are they going to spend more or feel more conservative and spend less? So maybe a bit on both, if you wouldn't mind.
- Sure. So on alternative data, of course, we look at retail sales, that's the standard data. But what's actually more interesting is data we get from Bank of America. And this is US consumers, how they're spending on their debit and their credit cards. And we get this broken out by 13 categories. And it's not just stores and retailers. It's also things like entertainment, travel, and lodging.
And watching this data allows us to know where consumers really are spending their money, and where they're not spending their money. And more importantly, how those trends have been changing over the past six to eight months or so. And then in Canada, TD Economics puts out regular data that's very similar to this as well. So we can get the Canadian data.
The other thing we look at is web traffic. So what are people searching for? What categories they're searching for? Are they looking for exercise equipment, or whatever? And that's been very helpful. We also get that by company, so we can see which companies are getting the most searches.
And then, the last thing that we've been looking at recently is restaurant data. So we get this really great data from around the world that shows us the number of restaurants that are taking reservations and the number of seated diners. And what this tells us is just how open various economies are around the world, and how that's changing, whether they're more open or less open. So that's been some really great data. It's giving us insight into some of the trends.
Now if we look toward--
I was just going to-- I'll interject-- I'll interject, Anita, for a second. Again, we've only got about 20 seconds. But when you look at all that data, and it's kind of cool because you can track everything digitally. So I think that's better than when we're walking around just trying to find what people are doing. But what do you see for the holidays? What's good and what's bad?
- So I think, certainly holiday sales will be down this year. Mainly because the consumer is in a difficult position with high unemployment and reduced government benefits, consumer confidence is down. And we have fewer big family gatherings, fewer parties, just fewer gifts that we need to buy in general. So that's going to weigh.
On the positive side, we do have a higher savings rate. So we see high cash balances in bank accounts. So for those people who have that cash sitting around, they might say, hey, we had a really crummy year, let's make Christmas really fun, and go all out in buying gifts for their family.
But I think overall we can expect that sales are going to be weaker this year.
- Anita, great analysis. Thanks, so much.
- You're welcome, Kim.
[MUSIC PLAYING]
Anita, great to have you with us. I want to start with a chart that you gave to us. And if we bring it up, and it shows e-commerce retailers versus bricks-and-mortar, and you really couldn't, I guess, get a more divergent path between the two, could you?
Yeah, that's right. This is a great chart. And this is data that we actually look at every quarter. And what you're looking at here is US retail sales broken out by online versus in-store. And normally, we see pretty steady performance, but as you can see in the second quarter of this year, there was a dramatic shift from people shopping in store to moving online. Where online growth was up 45%, dramatic number. And in-store sales were down by 10% in the second quarter. And of course, this is because a lot of stores were closed, and also because people were just staying home.
And I think what this demonstrates is just how e-commerce has played such an important role through this pandemic. I mean, for one thing, it's delivered essential goods to those people who weren't able to leave their homes or couldn't leave their homes, but also it's helped to prop up total retail sales. So some of the sales that were lost in store were being done online because people were able to do that. So e-commerce got a big boost through this pandemic. And I think that this higher level of e-commerce spending is probably going to be here to stay.
- And I think it depends on the mix of the store. I mean, those obviously that weren't so skewed to e-commerce certainly are moving in that direction. I know you got another list here, and this one is amazing for all the wrong reasons.
- Yes.
- This is a list of retailers that have either declared bankruptcy or closed their stores. Is there light at the end of the tunnel for bricks-and-mortar stores?
There is definitely light at the end of the tunnel. I think though at this point we're still pretty deep in the tunnel. And the reason for that is just because foot traffic has been down significantly. So in the US foot traffic to malls is down 40% to 45%. And that's very, very dramatic for these bricks-and-mortar stores. And what's going to change this? I think is just what's the direction of the virus? What are the case counts going to be? What sort of actions are governments going to take to further restrict people's mobility and their activities? And then, of course, when do we get a vaccine? How widely is it distributed? And how comfortable are people going to feel about that vaccine, and then getting back out into the stores?
So I think probably by spring the worst is behind it for the bricks-and-mortars retailer. But the reality is that the next few months are going to continue to be rough. And we're probably going to see more companies being added to this list, those ones that are filing for bankruptcy protection and closing their stores.
- All right. Well, let's talk of the ones that are not on the list. I think in terms of Canada you've got Lululemon, Aritzia. In States, you've got companies like Home Depot and Target. What are they doing right, and can they continue doing it?
- I think there are two categories of things that some retailers are getting right, and why they're actually doing fairly well right now. So one of those things is that going into the pandemic, they were already well set up for e-commerce. And the other one is that they're simply in the right categories of goods. Because some categories are of course selling better than others.
So let's look at Lululemon, for example. Lululemon came into the pandemic with an excellent e-commerce presence, a great social media presence. So they've been able to make up some of those lost in-store sales, have been able to make it up online. Now Lululemon, of course, also has the amazing benefit of being in pretty much the exactly right category right now, which is athleisure wear, and athletic wear, as people are more active and they're capitalizing their wardrobe. So Lululemon's a great example.
Now another example, which might be a surprise to a lot of people is Aritzia. Aritzia is a Canadian, primarily women's apparel company, which is a highly discretionary category. But Aritzia also had a very good e-commerce presence coming into this, and has seen their online sales rise dramatically.
If we look at Home Depot, though, a very, very different company, in a very different story. Home Depot has benefited because of the category that it's in. So we've been reading a lot about how people have been renovating their homes, spending more money on their homes, getting to that long list of to-dos that they need to get done. So home improvement and home repair has been a massive category. And that's really been good for Home Depot. And in addition, Home Depot has been able to pivot a little bit in the pandemic by offering things like curbside pickup.
- A couple things I want to ask you if I can squeeze in. One is about alternative data, because I know you watch some. I'd like to know what you're watching. And then also, the outlook for the holidays. Are we going to see-- with people obviously not traveling still, are they going to spend more or feel more conservative and spend less? So maybe a bit on both, if you wouldn't mind.
- Sure. So on alternative data, of course, we look at retail sales, that's the standard data. But what's actually more interesting is data we get from Bank of America. And this is US consumers, how they're spending on their debit and their credit cards. And we get this broken out by 13 categories. And it's not just stores and retailers. It's also things like entertainment, travel, and lodging.
And watching this data allows us to know where consumers really are spending their money, and where they're not spending their money. And more importantly, how those trends have been changing over the past six to eight months or so. And then in Canada, TD Economics puts out regular data that's very similar to this as well. So we can get the Canadian data.
The other thing we look at is web traffic. So what are people searching for? What categories they're searching for? Are they looking for exercise equipment, or whatever? And that's been very helpful. We also get that by company, so we can see which companies are getting the most searches.
And then, the last thing that we've been looking at recently is restaurant data. So we get this really great data from around the world that shows us the number of restaurants that are taking reservations and the number of seated diners. And what this tells us is just how open various economies are around the world, and how that's changing, whether they're more open or less open. So that's been some really great data. It's giving us insight into some of the trends.
Now if we look toward--
I was just going to-- I'll interject-- I'll interject, Anita, for a second. Again, we've only got about 20 seconds. But when you look at all that data, and it's kind of cool because you can track everything digitally. So I think that's better than when we're walking around just trying to find what people are doing. But what do you see for the holidays? What's good and what's bad?
- So I think, certainly holiday sales will be down this year. Mainly because the consumer is in a difficult position with high unemployment and reduced government benefits, consumer confidence is down. And we have fewer big family gatherings, fewer parties, just fewer gifts that we need to buy in general. So that's going to weigh.
On the positive side, we do have a higher savings rate. So we see high cash balances in bank accounts. So for those people who have that cash sitting around, they might say, hey, we had a really crummy year, let's make Christmas really fun, and go all out in buying gifts for their family.
But I think overall we can expect that sales are going to be weaker this year.
- Anita, great analysis. Thanks, so much.
- You're welcome, Kim.
[MUSIC PLAYING]
