The burden of COVID-19 may finally be easing. But for retailers that were already in trouble before the coronavirus took hold, it's too little, too late. Look for more retail bankruptcies in the weeks and months ahead.
That industry's headwind isn't a universal one though. Some retailers like Walmart (NYSE:WMT), Big Lots (NYSE:BIG), and Kohl's (NYSE:KSS) are not only surviving, they are thriving, perhaps because of COVID-19. Here's why these three retailers have remained investment-worthy when other names in the business haven't.
1. Walmart combines sheer size with savvy
Being the nation's (and the world's) biggest retailer clearly leaves Walmart in an enviable position. Its sheer size not only makes it the most accessible shopping venue for U.S. consumers, but it also gives it more purchasing power than any rival. The company isn't simply leaning on its size in this tough environment, though. It's innovating in ways we've rarely seen from Walmart, and in ways that truly matter.
Case in point: Last month, the company launched its subscription-based Walmart+, offering unlimited free deliveries from stores to shoppers' doors in a slew of markets. For some members, even same-day deliveries are possible. Membership also includes discounts on fuel purchases and other in-store perks.
While it's a respectable counter to the popular Prime program from Amazon, it wasn't widely hailed as a near-term game changer. It's starting to look like it might be. In just its first two weeks of availability, 11% of Americans have already become subscribers, according to a survey from consumer research outfit Piplsay. Another 27% of respondents said they may sign up soon. Unlimited delivery and same-day delivery were the biggest attractions to the service. This sets the stage for an incredible year-end for the brick-and-mortar name.
And it's not just a new delivery program making Walmart more competitive right now. The retailer is building a presence in the primary healthcare market including a foray into health, for instance, and expanding its e-commerce reach by partnering with Shopify.
Simply put, Walmart continues to build a lifestyle-based ecosystem that can drive revenue in any environment.
2. Big Lots may be small, but it sure acts big
Dollar General may be the dominant name among neighborhood discount stores, nearly doubling its store count over the course of the past decade to over 16,000. However, just because it's the biggest company in its retail segment now doesn't mean it's the best investment of its kind. That honor arguably belongs to Big Lots. Its smaller size -- it operates little over 1,400 venues -- means it's also nimble and able to adapt quickly.
One only has to look back to March to appreciate this. Less than a month after COVID-19 made landfall in the United States, Big Lots implemented a curbside pickup program for online orders. Dollar General also offers at-store pickup of online orders, but doesn't bring them to shoppers' cars. This nuance may be one of the reasons Big Lots was able to boost its top line by 31.3% year over year for the quarter ending in early August, versus Dollar General's more modest 24.4% improvement.
Largely overlooked in Big Lots' superior performance is the fact that the much smaller company even had inventory management systems capable of handling this sort of e-commerce in the first place.
The underpinnings that let Big Lots outpace Dollar General as well as Walmart aren't temporary in nature, though. They're ultimately reflections of an overhaul plan called Operation North Star that the company put into motion last year. It's a surprisingly savvy rethinking of everything the discounter does, ranging from a focus on store-owned brands, marketing that's tailor-made for the way its most important shoppers live, and new in-store designs conducive to spending. Look for major top-line growth this quarter as well, following an incredible second quarter.
3. For Kohl's, survival now will pay off later
Finally, add Kohl's to any list of apocalypse-proof retail stocks to buy in October.
It's not an idea every investor will agree with -- initially. Rival J.C. Penney has been acquired out of bankruptcy, but new owners Simon Property Group and Brookfield Property Partners clearly have work to do. Fellow department store chain Macy's has its problems too, and it is still planning to close more than 100 stores within a couple of years. Even Kohl's has taken some coronavirus lumps, with its top line down more than 31% year over year for the six-month stretch ending in early August.
In short, the department store and apparel business looks like it's in serious trouble.
This isn't necessarily a bad thing for Kohl's, though. Sheer attrition means Kohl's will face less competition once the pandemic finally abates and life gets back to normal. CEO Michelle Gass commented during August's earnings call, "I think we're really set up to capture what will be billions of dollars market share opportunity in the future" in a way that leverages its neighborhood-oriented off-mall presence. It just needs to hang on, and it largely is. A closer look at recent headlines shows Kohl's isn't permanently shuttering stores the way its rivals are.
The company is also in the midst of initiatives that will make its stores more marketable now, and later. Just this week it expanded its partnership with Land's End that offers more of the popular brand's clothing through Kohl's, and earlier in September it expanded its curated offerings of merchandise consumers may not be able to find anywhere else. It's even partnered with Snapchat to build an augmented-reality e-commerce platform.
With shares down more than 60% year to date and still within sight of April's lows, investors don't seem to understand just how much opportunity Kohl's faces in the near and distant future.