The ongoing Covid-19 pandemic has remade retail in ways that are likely to last long after the threat of the virus fades. That’s an opportunity for companies that are set to handle evolving consumer behavior.
As Barron’s has noted before, the crisis hasn’t so much changed consumer behavior as it has shifted existing trends into high gear. “While secular trends accelerated, they largely behaved as expected,” notes KeyBanc Capital Markets analyst Edward Yruma, who sees many pandemic winners well-positioned in 2021, as well as hope for old stalwarts.
As retail prepares for a post-pandemic world, it will likely remain dominated by recent innovations. One obvious candidate is convenience. Even when it’s safe to shop in stores again, the genie is out of the bottle, and time-strapped consumers are likely to continue to gravitate toward omnichannel options like curbside and in-store pickup.
That’s good news for major players like
(ticker: WMT) and
(TGT), which have huge national networks and have already benefited greatly from in-store fulfillment. Jefferies analyst Stephanie Wissink, who argues that Walmart stock could ultimately reach $200, expects “omni-utilization to settle meaningfully above pre-pandemic levels with click-and-collect models preferred to delivery only.”
Cowen’s Oliver Chen believes that bricks-and-mortar stores will continue their transformation into “hubs,” as services like curbside pickup both drive “high customer satisfaction and save retailers on last mile fulfillment costs.” Behind the scenes, he notes that big companies like Walmart are automating historically slim-margin businesses, like grocery, that will “improve speed and profitability.”
Target is another company that’s doing this well—it touted a 500% surge in drive-up orders during the holiday season—while it also enjoys a social boost for its move to start all employees at $15 an hour, a level that some workers’ rights groups see as the minimum for a living wage.
That could be a key asset going forward, given that environmental, social, and governance (ESG) investing has continued to gain popularity during the pandemic, as societal and environment vulnerabilities have become increasingly obvious.
“Society at large and (more recently) the investment community have waked up to the fact that long-term thinking is the foundation of business success and investment returns,” writes Ken McAtamney, head of William Blair’s global equity team, who calls the endurance of ESG one of the three biggest lessons from 2020. “Building durable, sustainable, enduring businesses and societies is the goal, and the stock market is increasingly recognizing these factors as being important organizational values.”
As for specific stocks, Chen argues that retailers can “do well by doing good,” especially if companies communicate and demonstrably show that these factors are a priority for them. He also highlights
LVMH Moët Hennessy-Louis Vuitton’s
(LVMH.Italy) “well-defined social responsibility framework” directed at employees, investors, and stakeholder communities, as well as
(REAL) high transparency around its environmental accountability.
Yet investors who favor numbers above all else still have reason to like these stocks. Both Target and Walmart change hands at less than 25 times forward earnings, with dividend yields above 1.4%, which could help keep investors patient as they transition from their huge pandemic surges to more-sustainable growth.
LVMH and RealReal are pricier, but the former is expected to see a major post-Covid rebound. Analysts expect earnings per share to grow about 75% year over year in 2021, on a more than 23% jump in revenue.
RealReal’s per-share losses are expected to drop more than 20% this year on a 35% revenue increase. As a clothing reseller, it’s been able to position itself at the forefront of the industry’s sustainability, pledging to be carbon-neutral in 2021, and it’s the first of its peers to join the United Nations’ Climate Change’s Fashion Industry Charter for Climate Action. That could appeal to investors who are keen for exposure to the secondhand clothing industry, which by some counts could roughly double in the four years ending 2023 and command some 10% of apparel sales.
Walmart stock closed Friday up 1%, at $146.33, while Target was up 0.3%, at $191.91. LVMH closed up 0.3%, at 510.90 euros, and RealReal was down 1.7%, at $27.29.
Write to Teresa Rivas at firstname.lastname@example.org