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The Zacks Analyst Blog Highlights: Target, Macy's, Walmart, Kroger and The Gap

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For Immediate Release

Chicago, IL – July 15, 2021 – announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Target Corporation (TGT - Free Report) , Macy's, Inc. (M - Free Report) , Walmart Inc. (WMT - Free Report) , The Kroger Co. (KR - Free Report) and The Gap, Inc. (GPS - Free Report) .

Here are highlights from Wednesday’s Analyst Blog:

Digitization Holds the Key: 5 Retailers to Watch

The pandemic has reshaped almost every other sector, compelling them to rewrite the rules of game and transforming the business processes. The Retail – Wholesale sector has not been an exception. While inventory management, supply chain enhancement and cost structure realignment have been part & parcel of business strategies, investment to accelerate digitization has now become paramount.

Companies have been emphasizing on upgradation of store technology and omni-channel capabilities, shopping via mobile app, and last mile delivery solutions.

Players in the industry have been aggressively adopting strategies and making planned investments to cater to customer demand be it in store or online. Undeniably, expedited delivery services like doorstep delivery, curbside pickup or buy online and pick up at store as well as contactless payment gateway will continue to play a crucial role in maximizing the companies’ share of customers’ wallet.

Without doubt, companies need to increase product visibility on online platforms, enhance customer engagement on social channels and make logistical improvements. More than a year since the pandemic had struck the economy, we believe that online shopping is here to stay even after the risk of infection subsides owing to safety and convenience.

Online Sales to Retain Sheen

Either by choice or habit, quite a few people prefer ordering groceries, buying apparel and accessories or purchasing household supplies online. According to eMarketer, U.S. e-commerce sales are projected to increase 17.9% to $933.3 billion in 2021, and reach 15.3% of total retail sales compared with 14% last year. It further suggests that e-commerce penetration will rise to 23.6% of total retail sales by 2025. This shows a sharp increase from 11% in 2019. Per the report, click-and-collect sales are likely to reach $140.96 billion in sales by 2024.

Well, the pandemic-driven boom in digital shopping has led to the proliferation of Buy Now Pay Later (BNPL) industry as consumers now a days seek more flexible and convenient payment options. Players such as Klarna, Afterpay and Affirm are offering BNPL service. Per eMarketer, 45.1 million people will use BNPL platform in the current year. This reflects an increase of 81.2% year over year.

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Target has been making multiple changes to its business model to adapt and stay relevant in the ever-evolving retail landscape. The company, which is among the biggest winners amid the pandemic, has been deploying resources to enhance omni-channel capacities and adopt strategies to provide a seamless shopping experience. It has been making constant efforts to improvise shopping methods and techniques through miscellaneous channels.

This Zacks Rank #1 (Strong Buy) company gained more than $1 billion in market share during first-quarter fiscal 2021, on top of $1 billion in share gains a year ago. Markedly, same-day services (Order Pick Up, Drive Up and Shipt) grew more than 90% during the first quarter. Sales fulfilled by Shipt were up nearly 86% year over year, while sales through Drive-Up were up 123%. Order Pickup rose 52% in the quarter.

The company plans to increase the number of fresh, refrigerated and frozen food items to Drive Up and Order Pickup nationwide. It had earlier informed that adult beverages will be available through pick-up and drive-up in more than 1,200 stores and for same-day delivery in more than 600 stores across the country. You can see the complete list of today’s Zacks #1 Rank stocks here.

In spite of a tough retail landscape, Macy's has managed to stay afloat, courtesy of its Polaris Strategy, which focuses on strengthening customer relationships, expanding assortments, accelerating digital growth, optimizing store portfolio and reducing costs. Customers have been responding favorably to the company’s expanded omni-channel offerings such as curbside, store pickup and same-day delivery.

In this respect, its tie-up with DoorDash for expediting delivery service is encouraging. The company collaborated with Klarna for offering online shoppers financial ease and payment flexibility. Macy’s is constantly improving its mobile and website features to deliver enhanced shopping experiences.

During first-quarter fiscal 2021, this Zacks Rank #1 company’s digital sales surged 34% from the year-ago quarter’s figure and contributed 37% to net sales. Nearly 22% of digital sales were fulfilled in stores. Management highlighted that 47% of new customers acquired during the quarter came from the digital channel, while 82% of the digital orders came from repeat customers. Mobile devices contributed nearly 60% to digital demand sales. The company anticipates online sales to reach nearly $10 billion by fiscal 2023.

Walmart Inc. has been trying to step up its online game for quite some time now owing to stiff competition from Amazon. We note that Walmart’s Sam’s Club division is testing a new Scan & Go technology, called Scan & Ship. The company’s delivery service has become more crucial amid the pandemic.

This Zacks Rank #2 (Buy) company has taken robust strides to strengthen its delivery arm, as evident from its investments in DroneUp; partnership with HomeValet; on-demand drone delivery in the United States with Flytrex and Zipline; and a pilot with Cruise to test autonomous grocery delivery through self-driven all-electric cars. Walmart had unveiled an alliance with DoorDash in the third quarter of fiscal 2021 to deliver prescriptions from pharmacies of Sam’s Club.

Apart from these, the supermarket giant has been undertaking several e-commerce initiatives, including buyouts, alliances, and improved delivery and payment systems. Its investment in Ninjacart; contract with Shopify; buyouts of ShoeBuy, Moosejaw and Bonobos, among others, underscore its intention to build an impressive digital brand portfolio. U.S. e-commerce sales rose 37% in the first quarter of fiscal 2022. At Sam’s Club, e-commerce sales jumped 47%.

The Kroger Co.’s digital business remains one of its key growth drivers. Clearly, customers have been opting for e-commerce solutions for their grocery and other household essentials. Considering the current scenario, this Zacks Rank #3 (Hold) company has been focusing on no-contact delivery option, low-contact pickup service and ship-to-home orders. It continued to expand contactless payment solutions like Kroger Pay or “Scan, Bag, Go”. Additionally, the company has been expanding its Customer Fulfillment Center so as to ensure efficient deliveries.

We note that digital sales rallied 16% (or grew 108% on a two-year stacked basis) during the first quarter of fiscal 2021. The company expanded to 2,233 Pickup locations and 2,488 Delivery locations. The company opened its first two Kroger Delivery facilities, powered by Ocado, in Ohio and Florida. It expanded the capacity for Pickup by 15% with focus on adding high-demand time slots. Apart from these, the company announced Kroger Drone Delivery pilot in partnership with Drone Express, reinforcing the importance of timely delivery to customers.

The Gap, Inc.’s online sales have been increasing, courtesy of omni-channel capabilities, including curbside pick-up and ship-from-store. The company continued to witness strength in the online business during the first quarter of fiscal 2021 with digital sales increasing 61% from first-quarter fiscal 2020 and 82% from first-quarter fiscal 2019.

Notably, digital business contributed 40% of total sales in the quarter under review. Continued growth in e-commerce business contributed significantly to the company’s consolidated sales as well as gains in its Gap, Old Navy and Athleta brands.

Going ahead, management remains keen on optimizing mobile experience as a key priority in fiscal 2021. The company launched its native Android app in March, which is gaining traction. Alternative payment options namely, PayPal and AfterPay, represented 20% of online spend during the first quarter.

This retailer of clothing, accessories and personal care products registered more than 60% jump in new online customers acquired versus last year. This Zacks Rank #3 company now envisions fiscal 2021 net sales growth in the low-to-mid twenty percent range compared with prior projection of mid-to-high teens increase.

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