Online sales are booming as many retailers have been forced to close their doors during the coronavirus pandemic. Shoppers spent 49% more in April this year compared to last year, according to data from Adobe, and there are some clear trends the company highlights in its April update to the Digital Economy Index.
"We've found that this sudden e-commerce acceleration is having an impact on apparel, electronics, and grocery purchases online," said John Copeland, vice president of marketing and customer insights at Adobe.
Apparel sales booming, but not at Target
Consumers looking to upgrade their wardrobe -- perhaps to less formal, more comfortable outfits -- saw a lot of deals last month. Online apparel prices dropped 12% from March, the largest month-over-month drop in five years and four times the usual drop in prices between March and April. The low prices led to a 34% overall increase in digital sales for apparel retailers.
Adobe's data shows that Target isn't participating as strongly in the shift to online spending. Target saw Apparel & Accessories sales decline 40% in the first three weeks of April, accelerating from the 30% decline it saw in March. It was forced to write down inventory as sales dried up, which investors will see reflected in its operating margin for last quarter.
Apparel & Accessories accounted for 18.5% of Target's sales in 2019. The fact that online sales aren't making up for lost in-store sales for apparel should be concerning to investors since it's such a major product category for the retailer. It's an indication it's losing sales to competitors like Amazon or perhaps smaller apparel specialists that have more successfully navigated the transition to e-commerce. And those sales might not come back as consumers form new shopping habits.
Work from home is boosting electronics sales
Online electronics sales increased 58% in April as employers helped their employees set up their home offices. The sheer amount of demand led to fewer sales and overall higher prices for things like computers and webcams. Meanwhile, electronics manufacturers are experiencing supply chain challenges, leading to a lot of out-of-stock items.
Best Buy saw a huge jump in online sales in the first half of April. It reported a 250% increase in online sales in an update to investors last month. Still, it says overall sales declined 30% year over year since moving to curbside pickup and delivery only. For reference, online sales accounted for about 19% of Best Buy's revenue in fiscal 2020 and over 25% in the fourth quarter.
Best Buy is handling the transition to curbside pickup well, but it's not clear how long booming home office equipment sales will prop up its business. There are still question marks about whether consumers will return to stores even when the doors open again. So, investors will want to hear what management has to say with regard to trends in May when it reports its first quarter earnings later this month.
Online grocery is the new normal
Online grocery sales more than doubled in April, up 110%. Digital grocery stores have kept pricing stable despite supply constraints. There are a few big winners in the online grocery space.
Walmart is one of the biggest winners. A survey from March found the retail giant winning more than half of all new online grocery shoppers. That suggests its gaining share in one of its most important product categories as sales move online. While online grocery sales will put pressure on margins (especially as supplier prices increase without meaningful changes in the price consumers see), it sets Walmart up to make money in other parts of its online business.
Surging online grocery sales for Walmart could lead to increased uptake of its Delivery Unlimited program, which could foster greater loyalty to Walmart's online store. Amazon sees that among its Prime members, who typically spend more than non-members.
Amazon's also benefiting. It has worked quickly to expand its capacity for Prime Now deliveries, doubling the number of Whole Foods stores it's delivering from to more than 150 and hiring thousands of delivery drivers. It has more demand than it can supply and created a waiting list for new customers.
If Amazon grocery sales become more of a habit, this can make Prime more appealing to more customers, thus increasing the value customers are already getting from the membership program and supporting sales in other parts of Amazon's retail business.
Overall, the trends are positive for the big names in retail. Amazon is naturally in the strongest position as an online-only store, but Walmart and Best Buy are doing well, leveraging their physical locations into online sales. Target investors have reason to be wary as there could be a decline in sales of a key product category even when shoppers start coming back into stores.