3 retail stocks that are likely to thrive postpandemic

3 retail stocks that are likely to thrive postpandemic
  • More and more consumers are shifting towards e-commerce and online shopping following the COVID-19 pandemic
  • “Digital has been one of the few real beneficiaries of the crisis,” a McKinsey report notes
  • Retail companies with strong e-commerce units profited immensely

The COVID-19 outbreak may have changed shopping habits forever. People seem much more reluctant to visit physical stores due to the risk of getting infected with the COVID-19. The store closures and national lockdowns forced people to get more comfortable with e-commerce. 

Is e-commerce a new shopping ritual?

The latest study conducted by the consultancy giant McKinsey shows that Chinese consumers are changing the way they shop. China is a country where the outbreak first appeared in January, which then led to the country being ahead of the curve in its recovery from the recent outbreak. 

According to the data obtained by McKinsey, four key shifts in behaviour have been observed recently. 

  • Offline shopping is slowly recovering;
  • Channel shift to online, offline convenience, and drugstores;
  • Health and fitness is here to stay;
  • Shock to loyalty offline, partly offset by online engagement.

All four key findings from the study show that the world’s most populous country is transitioning towards e-commerce and online shopping. Online grocery shopping has surged in the entire region of Southeastern Asia, according to the graph below.

“Digital has been one of the few real beneficiaries of the crisis,” the report concludes. 

Similarly, data from the Bazaarvoice Network shows that customers started to really embrace online shopping  

“This data highlights what most of us are currently experiencing, as we are having to change our normal shopping habits and look to purchase more items online than we all usually would”.

Grocery shopping burst in March, first at the physical stores. Once these were almost empty, shoppers turned online to find the goods they couldn’t find in their local grocery stores. People also started to focus on the fundamentals and less on life experience, luxury brands, cars etc. 

“People are not thinking about buying discretionary items right now,” said Abercrombie CFO Scott Lipesky.

Online grocery ordering service FreshDirect said it has recorded a surge in revenue as people have shifted more towards consuming more fresh and organic food to stay healthy, which is likely to impact fast-food restaurants and provide a boost to retailers.

“We have seen a significant surge in FreshDirect orders from our existing customers, as well as a wave of new customers,” said Chief Merchandising Officer at FreshDirect, Scott Crawford.

3 retail stocks to buy

These 3 retail companies have managed to refocus their business models and quickly adapt to the fast-changing environment as the e-commerce numbers skyrocketed. 

Target

Earlier this year, Target (NYSE: TGT) broke into the top 10 list of the U.S.-based online retailers with a 1.2% share of e-commerce sales. During the last call with investors, Target reported that its comparable sales jumped by 10.8%, compared to the last year, while online sales skyrocketed more than 140%.

This is the main reason why shares of Target exploded nearly 40% since the first week of April, with the stock looking well-positioned to continue ascending on the expected surge in revenue growth. 

The surge in stock price came in despite the increase in sales cost by 18.5% that dragged the company’s earnings for the quarter to $0.57 per share. Once Target is able to minimize costs, which is expected as soon as this quarter, much higher profits are on the horizon. 

TJX

TJX Companies (NYSE: TJX) is an off-price chain selling family apparel. The company is known for diversification as it owns brands such as T.J. Maxx, T.K. Maxx, Marshalls, HomeGoods, Sierra, Winners, and Homesense.

Similarly to Target, shares of TJX surged following the initial coronavirus-related selloff to gain more than 30%. TJX stock price surged after the company reported results for its fiscal first quarter, despite missing the expectations. 

The surge in stock price came after the CEO Ernie Herrman said that he was “encouraged [with] the very strong sales we have seen with our initial re-openings.”

Shares of the company traded at the record highs days before the COVID-19 outbreak, which signals the fundamental strength of TJX’s business.

Home Depot

Home Depot (NYSE: HD) is one of the very few companies that witnessed its stock price hitting record highs this month. The stock performance came as a result of the same-store sales jumping 6.4% in the first quarter and revenue increasing by 7.1%. Similar to Target, e-commerce sales erupted 79% in the first quarter.

“As shelter-in-place orders rolled out across the country in mid-to late-March, we saw our digital businesses accelerate from approximately 30% growth in early March to triple digit growth in early April. During the last three weeks of the quarter, traffic to HomeDepot.com was consistently above Black Friday levels,” the executive vice president of merchandising Ted Decker said after the Q1 results were posted. 

Home Depot is arguably the best-performing stock in the last two months as it surged 70% from the lows. The buyers are now likely to target a move to $275, which represents a premium of around 11% compared to the current market price. To learn how to buy shares, click here.

Summary

The COVID-19 global outbreak will definitely define this year with a high likelihood that it will have implications on how people behave and businesses operate well into the decade. More and more people are switching to online shopping. 

As a result, retailers are benefiting both from the rapid surge in online shopping volumes and conventional shopping as people tend to spend more funds on the fundamentals and less on experience.

By Michael Harris
Specialising in economics by academia, with a passion for financial trading, Michael Harris has been a regular contributor to Invezz. His passion has given him first hand experience of trading, while his writing means he understands the market forces and wider regulation.
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