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4 Discount Retailers Set to Maintain Winning Streak in 2021

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The coronavirus pandemic has created a tough operating environment for retailers. The year that commenced on an upbeat note took a nasty turn with the rapid spread of the novel coronavirus. Sinking consumer confidence and dwindling household income compelled consumers to curtail spending, and seek for better bargains. Clearly, this led to growing inclination toward discount stores.

Few Facts to Bear in Mind

The strategy to sell products at discounted prices has helped off-price retailers draw customers, who have been seeking both value and convenience amid the pandemic. Under the current circumstances, people in the low-to-middle income groups have been exhibiting a preference for discount stores for essentials and other household needs. Clearly, a differentiated product range resonates well with customers’ spending habits.

That said, industry participants have been focusing on deepening engagements with consumers, expanding merchandise assortments, and enhancing digital and data analytics capabilities. They have been making strategic investments to provide consumers fast, convenient and safe shopping experience, be it offline or online.

Keeping in mind consumers’ product preferences and growing inclination toward online shopping, thanks to social distancing and greater stay at-home trends, discount players have been replenishing shelves with in-demand merchandise, and expanding delivery options — curbside pickup or ship-to-home orders — and contactless payment solutions. The companies have also been investing in renovation, improved checkouts and mobile point-of-sale capabilities to keep stores relevant.

Certainly, the space is highly competitive and fragmented with companies vying for a bigger slice of the market on attributes such as price, products and speed-to-market. Again, higher digital marketing investments, and constant store remodeling and refurbishments have been bumping up costs. But these investments seem unavoidable, given the changing retail dynamics.

4 Players to Watch

Undoubtedly, the new $900-billion coronavirus relief package that also includes stimulus checks for individuals and the roll out of mass vaccination will lend the much-needed support to the economy battered by the pandemic. But people’s preference for discount stores is here to stay. The Retail – Discount Stores industry currently carries a Zacks Industry Rank #100, which places it in the top 39% of more than 250 Zacks industries.

Target Corporation (TGT - Free Report) has been taking steps, which have improved prospects in a big way. This general merchandise retailer has been making investments to enhance omni-channel capacities, come up with new brands, and remodel or refurbish stores to cater to consumer demand and behavior in the new normal. The company has been consolidating its position in the food and beverage space with a robust portfolio of owned and exclusive brands. The company’s commitment to offer unique shopping experience with safe and convenient options, including contactless Drive Up and Order Pickup, and same-day delivery with Shipt, are worth a mention. We also note that shares of this Zacks Rank #2 (Buy) company have surged 32.8% in a year. Also, the Zacks Consensus Estimate for earnings for the current and next financial year has jumped 8% and 3.2%, respectively, in the past 30 days. The company has an estimated long-term earnings growth rate of 8.5%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Dollar General Corporation (DG - Free Report) has been benefiting from coronavirus-induced spike in demand, courtesy of its better pricing, private label offerings, effective inventory management, and merchandise initiatives. In order to drive traffic, this Goodlettsville, TN-based company has been focusing on both consumables and non-consumables categories. The company has also been offering better-for-you products at affordable prices. To engage further with customers, the company introduced a new retail store concept “popshelf.” Additionally, it has been expanding cooler facilities to enhance the sale of perishable items. Notably, the company has been expanding DG GO! mobile checkout. Moreover, the company’s DG Pickup initiative, which is buy online and pickup in store, is available across its stores. Markedly, shares of this Zacks Rank #3 (Hold) company have appreciated 35.6% in a year. Also, the Zacks Consensus Estimate for earnings for the current and next financial year has moved up 4.6% and 1.8%, respectively, in the past 30 days. The company has an estimated long-term earnings growth rate of 13.7%.

Costco Wholesale Corporation (COST - Free Report) has emerged as one of the preferred shopping destinations for consumers amid the ongoing crisis be it for essentials or other discretionary purchases. This Issaquah, WA-based company has been adopting strategies and making planned investments to cater to consumer demand and behavior in the new normal. Better price management, decent membership trends and increasing penetration of e-commerce business have been contributing to the company’s upbeat performance. To drive online sales, the company launched CostcoGrocery to deliver non-perishable items to buyers’ homes. Its partnership with Instacart facilitates same-day delivery of groceries to shoppers. The company acquired Innovel Solutions, a leading provider of third-party end-to-end logistics solutions. The buyout bolsters Costco’s e-commerce capabilities and facilitates sales of "big and bulky" items. Impressively, shares of this Zacks Rank #3 company have advanced 25.1% in a year. Also, the Zacks Consensus Estimate for earnings for the current and next financial year has risen 3% and 2.3%, respectively, in the past 30 days. The company has an estimated long-term earnings growth rate of 8.7%.

Dollar Tree, Inc.’s (DLTR - Free Report) sound business fundamentals and favorable customer response toward assortments have been driving the performance. The company continues to develop new strategic store formats to better serve consumers, while improving store productivity and margins. The company is focused on developing online capabilities, including buy online and pickup at store and delivery options through Instacart and Shipt. Additionally, the company plans to expand its Dollar Tree Plus! offering to around 500 stores, starting spring 2021. Notably, shares of this Zacks Rank #3 company have increased 21% in a year. Also, the Zacks Consensus Estimate for earnings for the current and next financial year has gone up 7.6% and 7.5%, respectively, in the past 30 days. The company has an estimated long-term earnings growth rate of 10.9%.

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