Categories Analysis, Retail

COVID-19 drove retailers up the digital path years ahead than anticipated

Macy’s is working on improving the profitability of its digital business through margin expansion, assortment prioritization and optimizing channel mix

Earlier we looked into how, during the COVID-19 pandemic, retailers saw changing trends in terms of their assortments and how the acceleration of online shopping led many of them to re-evaluate their store strategy and reorganize their store fleet. Now let’s see how retailers were pushed into a digital transformation, which would have normally taken years, in just a few months.

Most retailers saw a massive hike in their digital sales during the health crisis as a majority of their stores remained closed, and many of them were able to offset the losses from store closures through the digital acceleration. Those who made early investments in their digital channels benefited from this sudden surge while others understood the overwhelming need to boost their digital capabilities in this day and age of e-commerce.  

Kroger

Kroger Co.’s (NYSE: KR) strong digital business drove market share growth during its most recent quarter helped by the investments made by the company to expand its digital ecosystem. During the pandemic, more customers started purchasing their grocery and household essentials online. Many of these customers were buying groceries online for the first time and the majority plan to continue this routine going forward.

Kroger has 2,100 pickup locations and 2,400 delivery locations that reach 98% of its customers and the company was able to combine its physical locations and its digital channel to provide improved customer service during the pandemic.

Digital sales increased 127% contributing 4.4% to identical sales without fuel. Digital sales growth was profitable on an incremental basis and the company is working on bettering digital profitability by improving sales mix and reducing costs.

Also read: Has the COVID-19 pandemic led retailers to change their assortment and store fleet strategies?

Macy’s

Macy’s Inc. (NYSE: M) saw its store sales decline 61% during its most recent quarter while digital sales rose by 53%, with digital penetration increasing to 54% which was up 10% sequentially. In the Bluemercury segment, bluemercury.com witnessed sales growth of 105% while total web customers grew by over 50% year-over-year with the strongest growth in May.

On its quarterly conference call, Macy’s stated that customers have migrated online at unprecedented rates and that retail is estimated to have seen 10 years of digital growth in just three months. The company added that those who invest in their digital retail infrastructure have significant opportunity.

Macy’s is working on improving the profitability of its digital business through margin expansion, assortment prioritization and optimizing channel mix. The company forecasts strong digital growth in the back half of the year.

American Eagle Outfitters

American Eagle Outfitters Inc. (NYSE: AEO) witnessed demand growth of 48% in its online channel, which was its fastest growth rate in over a decade. This momentum was driven by growth in new customers as well as strength in traffic and conversion. The company’s investments in its digital platforms and omnichannel capabilities are helping it keep pace with strong customer demand.  

In the Aerie brand, around 70% of revenue was generated online with customer acquisition more than doubling in the digital channel. Digital demand increased 113% in the most recent quarter. In the AE brand, digital demand rose 21% with significant growth in online customers.

Mobile channel penetration continued to rise at over 60%, with a 45% increase in app downloads and around 39 million sessions. Looking ahead, AEO expects its Aerie brand to have a digital penetration above 50%.

Guess? Inc.

Guess? Inc. (NYSE: GES) saw high single digit growth in its ecommerce business in North America and Europe and the company expects this business to see an uptick in the second half of the year as it invests more in marketing and repositions its product offering.

Abercrombie & Fitch Co.

Abercrombie & Fitch Co. (NYSE: ANF) recorded a 56% growth in digital sales to $386 million with double-digit gains in each month along with improved traffic and conversion. The company’s global platforms and distribution center infrastructure has helped it keep up with the strong digital demand.

Most retailers believe the growth in ecommerce will continue to ramp up in the coming months as the trend of shopping online is here to stay. These companies are making significant investments in their digital capabilities to take advantage of these trends.

Click here to read Abercrombie & Fitch Q2 2020 earnings call transcript

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