The financial services company says the big-box chains seem well-positioned to withstand the crisis both in the short- and long-term — even given the many unknowns surrounding the situation.
For now, Target and Walmart have seen large gains in the grocery category as panicked shoppers load up on household products. In a report last week, Target announced that comps have been up more than 20% so far in March. Although apparel and accessories sales are down by 20%, essentials such as food and beverage have seen sales jump upwards of 50%. Walmart, meanwhile, is hiring an extra 150,000 workers to keep up with increased demand; it will also implement pay raises for hourly employees at its e-commerce warehouses.
If and when the grocery wave subsides, Goldman predicts that retailers could benefit from the temporary closure of other, nonessential retailers and pick up sales in categories such as apparel, beauty and home.
“While discretionary spending is down and will likely remain pressured as the macro environment is likely to remain challenged, we expect Target and Walmart to gain some share for those still shopping these categories,” Goldman said.
In the long-term, Goldman says there will likely be a deceleration in growth in groceries and other essentials, but he noted that customers will still have to restock some items. Additionally, amid economic pressures, consumers are also likely to eat out less, the firm forecasts.
Further, while both retailers could face tough comps during the next fiscal year as the global health crisis presumably abates, Goldman predicts customers may continue shopping habits established amid virus concerns: “Given the strong traffic that was driven to both the stores and e-commerce sites for these two retailers when people were concerned about the virus, that there was likely new customer acquisition and/or existing customers who gave a larger share of wallet, which could continue.”
Goldman predicts Walmart earnings will accelerate in 2021 on e-commerce growth in grocery and other initiatives. On a 12-month basis, Goldman estimates that Walmart shares will climb to $121, implying a 10% upside; currently, Walmart shares are trading for $112.
Meanwhile, Goldman says it believes Target’s brand portfolio, including private labels as well as partnerships with Disney and Levi’s, will be beneficial going forward. The firm’s 12-month goal for Target is $105; shares are currently trading for $97.
While Target and Walmart doors are currently open, many fashion and footwear retailers have shut all U.S. locations during the coronavirus crisis. As of Monday morning, the coronavirus has sickened more than 143,000 people and killed over 2,500 in the U.S.
Although discretionary spending is down amidst the crisis, President Donald Trump on Friday signed a massive stimulus bill aimed at boosting the economy. The $2 trillion package — recognized as the largest fiscal stimulus package in modern American history — will send direct payments and grant unemployment benefits to millions of individuals, and it will provide billions in financial aid to state and local governments, large and small companies and public health entities.