What Target did to take market share from Walmart and Amazon

When it comes to digital sales, big box retailer Target (TGT) far outpaced its competitor Walmart (WMT) last quarter.

“Target actually had greater e-commerce growth in Walmart almost twice as high, which means that they are absolutely gaining share, not just against Walmart, but Amazon (AMZN) as well,” Sucharita Kodali, retail analyst for Forrester Research, told Yahoo Finance’s The First Trade.

Target’s first quarter digital sales grew 141% year over year, compared to Walmart’s e-commerce sales growth of 74%. Target’s late quarter sales surge was fueled by people stocking up during the pandemic.

“The challenge of course to this is profitability,” said Kodali, noting Amazon’s and Target’s profit were both affected by higher expenses due to COVID-19.

Target says its operating margins shrank last quarter in part because of fewer high margin apparel items sold, higher digital and supply chain costs, and increased compensation costs for workers. The company also invested in safety measures in stores.

“Walmart yesterday … reported the strong earnings,” said Kodali. “Which suggests that Walmart’s been better at containing its costs. Whereas Target has invested heavily in driving its market share through e-commerce.”

A man wears mask as he shops for toys at a Target store during the COVID-19 pandemic in Schaumburg, Ill., Wednesday, May 6, 2020. (AP Photo/Nam Y. Huh)

Target and Walmart’s performance show how big box retailers providing essential goods have been able to weather the pandemic. So have home improvement giants Home Depot (HD) and Lowes (LOW).

“Home improvement space has done very, very well,” said Kodali. “They too have seemingly managed their expenses, that this season has caused through extra sanitation and supply chain challenges.”

Essential retailers and home improvement have performed in sharp contrast with apparel retailers, some of which have gone bankrupt as their stores were shuttered during state lockdowns. Clothing stores suffered the biggest drop last month as overall retail sales in the US plunged a record 16.4% in April.

“There’s no question. They are going to be more retail bankruptcies this year. There will likely be more than we’ve ever seen,” said Kodali. “The whole middle ground and those that are heavily invested in physical real estate will be challenged.”

Ines covers the U.S. stock market from the floor of the New York Exchange. Follow her on Twitter at @ines_ferre

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