It’s fair to say 2020 was full of surprises. In retail, so was 2021.
For all the dire predictions of the impact of COVID-19, “overwhelmingly, retail came out ahead,” says David Marcotte, senior vice president for Kantar. “For a variety of reasons. But it’s undeniable that everybody, except for those in apparel, did much better than anyone expected.”
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The National Retail Federation has released its annual Top 100 Retailers list, and Walmart remains in the leading spot, complete with 6.6 percent sales growth between 2020 and 2021 (and U.S. retail sales of $459.51 billion). The next three companies listed — Amazon, Costco Wholesale and The Home Depot — saw growth of 12.6 percent, 15.8 percent and 15.1 percent, respectively.
Look a little further down the list, however, and a number of retailers — Ross Stores, TJX Companies, Burlington and Dillard’s among them — saw U.S. sales growth of 50 percent or more. Harbor Freight Tools, No. 82 on the list, saw a whopping 93.4 percent growth, and increased its U.S. store count 7.1 percent to 1,210.
Harbor Freight, Marcotte says, “basically has two or three of everything. When you go in there, you either find exactly what you need, or you don’t. There’s no in between. But when you do, you get a tremendous value. And that’s one of the things that got them up into the rankings.”
The nation’s surge in home improvement projects did well for related retailers; it “powered up these retailers further than we’ve seen in a long time,” Marcotte says.
It wasn’t so much that they did well in 2020, but that the expansion continued. In addition to The Home Depot, growth was seen with Ace Hardware, True Value, Lowe’s and especially Tractor Supply Company. Not faring so well? Office Depot, losing 4 percent in U.S. sales and 10.1 percent of its U.S. stores, and Staples, down 3.4 percent in U.S. sales and 2 percent in U.S. stores.
Overall, however, 2021 was a year that, from a retail perspective, “everyone, I think, is going to remember fondly.”
“During COVID and lockdowns, and then going into the supply chain issues during and shortly thereafter, shoppers’ attitudes toward going into the store or shopping online were just radically different than in 2019,” Marcotte says.
“Almost any trip was driven by need, but not necessarily a desperation need. It was a need for entertainment, a need to get out, a need to find something. And in both going online and into stores, finding things was, I wouldn’t say an adventure, but a challenge.”
As such, shoppers weren’t motivated by promotions, or even merchandising. “What retailers were dealing with was a shopper who was trying to find what they needed and was willing to overlook all other flaws,” Marcotte says.
“From a strategic point of view, just about everybody backed off market investment funds, ad dollars and promotion. If you looked at frequent shopper programs, they still were very much in existence, but they scaled back severely in terms of the types of price reductions they were offering.”
Today, however, shoppers have a completely different mindset. “We’re seeing a surge in frequent shopper programs and electronic coupons,” he says. “And we’re seeing the introduction of retail media” to engage shoppers trying to squeeze every last dollar.
In 2021, the growth for retailers such as Ross, TJX and Burlington fell right in line with shoppers not concerned about merchandising or the experience. In his own experience, Marcotte says, TJ Maxx had items he couldn’t find anywhere else; when department stores had problems in 2020, a lot of their overstocks — including luggage as well as clothes — ended up being sent to stores in that category. It made for an interesting selection.
‘Come as you are’
As for 2022, the first thing that has hit retailers is labor, he says. Most retailers have been operating with a 20 percent reduction in workers, from the store to the warehouse. There also are continuing issues with trucking and the supply chain.
“That’s been a re-education for most retailers,” he says. “For the past 40 years, the story has been, ‘I can get by with less labor, and in an ideal situation, I can pay them less.” And that’s not true.”
In addition, retailers are learning that experiential retailing can’t be done through merchandising alone. With significant construction shortages in both materials and labor, stores couldn’t — and still can’t — necessarily be built or remodeled.
“And that’s outside [your] own labor force,” he says. “That was another revelation. I’m starting to refer to 2023 as, ‘the year you come as you are.’ The labor picture will probably change slowly, but not quickly. The commercial real estate picture will also change slowly and it’s not going to get cheaper. On a global basis, it’s going to be a challenge for retailers to really change their stores’ physical footprint.”
Of diamonds and department stores
On the surface, one might suspect that department stores such as Dillard’s, Macy’s and Hudson’s Bay would have responded similarly in 2021. Not necessary so; that’s a “pretty radical list,” Marcotte says, with each one having a unique experience.
Dillard’s came through “far better” than Marcotte would have guessed. “It really shows the maturity of their business model and their management. It really surprised me, given their inventory-heavy approach to the market.”
Macy’s, meanwhile, “keeps following areas where they’re successful, which keeps taking them downstream,” Marcotte says. At current, that’s the Backstage store-within-a-store concept. As for Hudson’s Bay, it’s a collection of stores that have had issues in both good times and bad, often rotating around product selection and promotion. “There are a lot of critical things that have had to be addressed with them,” he says. “When things turned bad, especially in 2020, it took them a long time to recover.”
In the meantime, things have been very good for the jewelry category. Signet Jewelers, for example, saw 30.6 percent in U.S. sales growth in 2021.
Marcotte notes several trends here: First, thanks to lockdowns and an inability to travel and spend, people have had more disposable income, either on purpose or by default. And since they have had this money, they have been able to afford to buy nice things. Jewelry is not only a nice thing; it’s also “remarkably cheap to move around, so they were never impacted by the supply chain. You could put an entire store’s inventory in a suitcase and take it on an airplane.”
Convenience stores have been a “mixed bag” over the last couple of years, largely due to lockdowns. At No. 22 on the list, 7-Eleven saw 31.6 percent growth in U.S. sales and 34 percent growth in U.S. stores — but only 26 percent of its locations are in the United States. There are, incidentally, 12,689 U.S. stores; the country with the largest number of 7-Eleven properties is Japan.
“Convenience stores in Japan have a whole different purpose in society than they do here,” Marcotte says. “The vast majority of the population is in one at least once a day, or for at least one meal a day. The explosion of them across Japan and into Asia was really following a very different set of conditions than in the U.S.”
In the U.S., a significant part of the growth of convenience stores is related to the housing trade and contractors; in addition, in 2021, gas prices were cheap. Marcotte predicts more foreign companies entering the U.S. in the coming years, one of the most significant being EG Group, a leading U.K.-based convenience retailer with sites in North America, Europe and Australia. EG Group not only includes brands such as Cumberland Farms, Certified Oil, Fastrac, Kwik Shop, Loaf N' Jug, Minit Mart, Sprint, Tom Thumb and others; it’s also now the U.K.'s largest operator of KFC, Greggs and Starbucks franchises.
“If we go into a global period of unease … the U.S. is always the safer market,” he says. “Money flows to the U.S., whether it should or not.”
Stories flying under the radar, he says, include Chile-based Cencosud acquiring a majority stake in The Fresh Market, as well as Smart & Final being bought out by a subsidiary of Mexican retailer Grupo Comercial Chedraui.
Also of note is that some of the fastest-growing grocery chains in the U.S. are Hispanic and Asian. “And unless you walk into one of them, you might not even know they exist.” Regardless of politics, he says, immigration is coming up very rapidly, and will continue to change the population. Aside from that, these stores offer “experiential retail” for all.
What’s now, what’s next
Marcotte also mentioned standout (and/or surprising) growth in Best Buy, Aldi, Chewy, Kohl’s and Tractor Supply Co. Many retailers that fell in rankings, conversely, were Chinese — thanks largely to government changes in how they put together their ecosystems.
Regardless, as retail moves forward in 2022, those that will be successful will be those that are able to “re-engage with shoppers in the same way they were with them in 2019.”
“We all wanted to go back to normal,” Marcotte says. “We’re back to normal. We have to be competitive, we have to invest, we have to create. But we really, really have to get involved with frequent shopper programs, electronic coupons and digital tools. The retailers that do that are going to do well.”