Americans grabbing groceries and fixing up their homes during the coronavirus pandemic have propped up top retailers' sales. But that same shopping behavior has also dented companies' profits.
Target, Walmart, and Home Depot all reported sales increases during their latest quarters, but said that higher labor and operations costs weighed on their bottom lines. The retailers, which were deemed essential businesses and have kept their doors open in the crisis, are also fulfilling more orders online. That is costlier for them than if shoppers buy in stores because companies have to pay for logistics and delivery fees.
These companies have also been hiking pay and expanding benefits to hold onto their workers and attract new recruits during the pandemic. Walmart, Amazon and Home Depot are hiring hundreds of thousands of workers to keep up with demand, while Target has expanded hours for its workforce. Chains have also have been cleaning stores and warehouses more frequently during the crisis, providing personal protective equipment to workers and making other adjustments to safety measures. Those are all additional expenses.
Retailers are trying to reduce costs by increasing automation in stores and warehouses. They are also using some stores to fulfill orders.
To be sure, the higher sales retailers are experiencing as people stock up on groceries and other essential goods could help alleviate the pressure.
"There is less an emphasis on profits," said Michael Baker, retail analyst at Instinet. "Operating costs will go up, but the biggest and best retailers will have picked up market share and new customers. This should drive continued sales growth and help leverage the higher costs."
More groceries, less clothing
Walmart, America's largest retailer, said Tuesday that sales at stores open for at least a year rose 10%, while online sales jumped 74%. It spent around $900 million in additional coronavirus-related costs during the quarter, including expanded benefits and bonuses for workers. Walmart said it cut back on executive travel and reduced consulting costs to save money.