Lauren Hobart, CEO of Dick’s Sporting Goods, said Wednesday that the company not only sells more golf clubs and active clothing, but has found a formula to increase profits, even when shoppers buy more online.
Hobart’s comments addressed an issue that has come up frequently in recent retail earnings calls: widening margins.
Consumers have been spent. This has helped. But another game changer is that retailers have learned to make e-commerce more profitable, from sending orders online from stores to guiding shoppers toward on-the-shelf collection.
“It’s kind of simple: it’s made into a store,” said Michael Baker, DA Davidson’s senior retail analyst. “And if the customer comes to the store to pick it up, it doesn’t matter.”
He said companies have fundamentally shifted their online businesses as they move more inventory from distribution centers and closer to customers ’homes. In addition, he said, customers have shown that they are willing to pay higher prices, a trend that is not expected to change any time soon.
This has caught the attention of investors. Dick’s shares hit an all-time high of $ 134.80 on Wednesday after it became the last retailer to exceed second-quarter earnings expectations and raise its forecast. Its quarterly sales increased 21% compared to the previous year’s period, and its profits increased almost 80%.
Dick CFO Lee Belitsky said the profits from online sales now match typical store sales, thanks in part to more customers picking up their own online purchases at the store or parking lot.
Numerous retailers, including Dick’s, Target and Best Buy, have also borne the cost of e-commerce orders. They have also turned stores into mini-stores and promoted parking collection as a faster option, making more money as they save on shipping costs.
Target, which launched the strategy before the pandemic, accounted for more than 95% of second-quarter sales in its stores. Best Buy said approximately 60% of revenue-based online orders were filled by stores during the second quarter and 42% were picked up by customers in their stores.
Dick stores accounted for more than 70 percent of online sales during the second quarter, Hobart said. In addition, he said customers who use the service tend to buy more.
Investors have been overseeing another dynamic that has helped margins: the level of promotions.
Customers have paid less attention to price as they clean the shelves and add items to virtual carts. Urban Outfitters and Anthropologie brands recorded “low second-quarter merchandise reduction rates,” said Frank Conforti, co-chair and chief operating officer of Urban Outfitters.
Best Buy also said there are also fewer goods that end up in office racks.
Matt Bilunas, chief financial officer of Best Buy, acknowledged in Tuesday’s earnings call that some of the things could disappear. He said the consumer electronics retailer will soon go through periods of very low promotional activity. Still, he said he expects the company to have fewer holiday promotions than two years ago, even if they are high compared to last year.
In a earnings call Wednesday, Hobart said Dick’s has been sophisticated in terms of promotions. He said he has removed the circulars, forcing the company to guess in advance what it should put up for sale. Now, he said, it can control trends and adapt more agilely with the help of data science, reducing or raising prices almost in real time. It features more exclusive merchandise, such as the new men’s athletics line, to avoid competing just for the price.
He said he believes the higher benefits can continue, even when the level of government stimulus is reduced.
Michael Lasser, UBS retail analyst, said retailers have levers they can pull to keep margins higher. He noted that reducing Dick to weekly circulars and Best Cross workers cross-training for different functions, so he can reduce working hours.
Still, he said, consumer spending will change when people return to offices, business trips and more social events. Supply chain challenges will gradually diminish. People will no longer be the same captive audience of shoppers: buy new sofas, according to computer monitors and more.
This, he said, will force retailers to post more deals and increase marketing again.
“As sales decrease, promotions will increase and this will put some pressure on margins,” he said.