EARNINGS

Can We Get the Check?

If you work in retail, you likely saw yesterday’s headline earnings beat. Walmart’s Q2 earnings defied expectations, led by a 97% jump in e-commerce sales.  

But there’s an asterisk. Low-income shoppers who relied on federal stimulus checks make up a significant portion of Walmart’s customer base. And without a second round of $1,200 checks or renewed unemployment aid to keep filling carts, CEO Doug McMillon said Walmart’s boom period has already deflated.

• Comparable sales only rose 4% in July, compared to 9.3% gains for the quarter overall. 
• So far in August, “Consumers are still spending money but not at [the] pace they were in the middle of the quarter,” CFO Brett Biggs told Bloomberg. 

It’s not just Walmart. Across retail earnings calls this week, leaders 1) dropped our forbidden words like Supreme collabs and 2) said that the end of stimulus relief is hurting sales. 

• Home Depot CEO Craig Menear: “When customers have more money in their pocket, there’s some benefit to that. So we don’t kid ourselves to think that that didn’t have some kind of impact.”
• Kohl’s CEO Michelle Gass: “Consumer behavior has been profoundly altered given safety and spending concerns, and we don’t expect this to change in the near term.”

Analysts expected as much when overall retail sales rose only 1.2% in July, a marked slowdown from May and June surges. 

The only exception? This morning, Target reported in-store and online sales rose 24.3% in Q2, a record for the Walmart rival. CEO Brian Cornell attributed rising sales to shoppers sitting out summer travel—not stimulus benefits. “The stimulus was a factor, but even as it waned we saw strong comparable-sales growth in June and July,” Cornell told Bloomberg.

Looking ahead...Federal lawmakers will determine if the tide can turn in retailers’ (and consumers’) favor. 

• Congress is currently deadlocked over competing stimulus packages. 
• President Trump signed an order on August 8 granting supplementary unemployment benefits, but it’s short of the possible trillions the stimulus packages could offer and won’t reach beneficiaries for weeks.

Bottom line: Stimulus or no stimulus, Walmart and company aren’t putting a restructuring expert on speed dial anytime soon. But waning benefits could set retailers of all sizes up for disappointing results in Q3. 

LUXURY

Telfar Drops the Drop

Luxury brands are built on a hauter-than-thou sense of exclusivity. What happens when an award-winning designer intentionally cuts it out? 

Telfar’s finding out. Today, Telfar is hosting its first-ever Bag Security Program: a 24-hour promotion for its perennially sold-out hero bags. 

• Customers can order as many as they want in the colors of their choice, for delivery by January 15, 2021.
• But the rules are strict: All orders must be paid in full at checkout, and no changes can be made to orders post-purchase.

Despite having zero places to carry a designer bag this summer, Telfar’s “Bushwick Birkins” have been harder to get than Birkin Birkins. Restocks often sell out in seconds; customers blame bots, but the brand has said most purchases came from verified humans. 

Why it matters: Too many brands produce too much inventory. Allowing customers to order exactly what they want reduces Telfar’s risk of overproduction, while opening the brand up to more customers. 

• Another upside: Taking orders ahead of production will help Telfar root out any bots that snuck into the checkout line.
• The downside: A five-month lead time demands more patience from shoppers than they’re used to.

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E-COMM

Delivery Dominoes

With yesterday’s announcement that FedEx is raising peak shipping fees again this year, all three U.S. shipping giants will slap surcharges on holiday orders. 

We’ve seen this film before. Like the U.S. Postal Service and UPS before it, FedEx is also anticipating—all together now—a surge in e-commerce orders this winter. And FedEx’s fees, up to $5 per package in some cases, are also targeting residential deliveries from large shippers. 

Second order implications

No matter the preferred provider, retailers have big decisions to make.

On the receipt: Retailers can choose between raising their product prices, raising shipping fees, or eating the costs. This could hurt small businesses the most: when mom and pop shops raise their prices, shoppers defect to Amazon.

At the curb: There’s a loophole. Store deliveries aren’t subjected to the residential fees, so retailers may want to dress up their buy online, pick up in-store experiences. 

On the customer service line: Retailers, not the delivery services, are usually on the receiving end of shoppers’ late order complaints during the holiday season. If surcharges can’t speed up shipping operations, retailers could be paying extra for the same dissatisfied customers.

WHAT ELSE IS BREWING

• Lowe’s reported online sales grew 135% in Q2. 
• Payless ShoeSource is back from bankruptcy for the third time.
• Urban Outfitters pulled USPS logo merch after customers discovered the collection doesn’t raise funds for the USPS.
• Marks & Spencer is eliminating 7,000 jobs.
• Stage Stores couldn’t find a bankruptcy buyer...so it’s liquidating.

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Q&A

Warby Parker is as well known for its “buy a pair, give a pair” donation program as its wire-frame glasses. But the charitable pillar of Warby Parker’s business faced roadblocks when the pandemic struck: Glasses weren’t the highest priority for the communities it sent donations to, and other services Warby Parker oversaw, like eye exams, posed a social distancing danger. 

So Warby Parker recalibrated. Instead of donating glasses, Warby Parker has joined efforts to donate PPE to communities in need—both in the U.S. and abroad. 

I spoke with cofounder and co-CEO Dave Gilboa about transforming Warby Parker’s charitable arm for a challenging era. We also talked about the evolving meaning of corporate responsibility, and whether Warby Parker would consider collaborating with former competitors to meet 2020’s unique demands. 

You can read my conversation with Gilboa here.

SWAPPING SKUS

If you have two minutes: Get acquainted with the shady world of dropshipping. (BBC)

If you have five minutes: Learn how Prose built its budding haircare empire...with shampoo that’s 10x more expensive than Pantene. (Forbes)

ICYMI

Catch up on the top Retail Brew stories from the past week.

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• Why DTC Brands Are Tightening Up Their Partnership Criteria