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Target sales surge in Q1 earnings, online sales up 141%

Target’s sales surged in the first quarter, fueled by people spending during the coronavirus outbreak. Sucharita Kodali, Forrester Research Retail analyst, joins Yahoo Finance's Alexis Christoforous and Brian Sozzi to discuss the retailers earnings report and how it compares to its competitors.

Video Transcript

ALEXIS CHRISTOFOROUS: Welcome back to "The First Trade." 10 minutes into the trading day right now. What we're learning is the big box retailers are faring pretty well during these pandemic-induced lockdowns. Today we found out Target's sales surged in the first quarter, up about 11%. Digital sales absolutely skyrocketing, better than 140%, as many people ran out to buy essentials during this time.

Joining us now to talk more about this is Forrester Research Retail Analyst Sucharita Kodali. Sucharita, good to have you on the show again. Just your take away-- now we've had Walmart and Target out with their Q1 earnings. What is your big takeaway from both?

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SUCHARITA KODALI: Well, their top line sales were great. Their comp store sales for even physical stores were some of the highest they've seen in years. And, of course, a huge percent of the lift was driven by e-commerce. Target actually had greater e-commerce growth than Walmart, almost twice as high, which means that they are absolutely gaining share, not just against Walmart, but Amazon as well.

Now, the challenge, of course, to this is profitability. Amazon has had softer profits as a result of their higher expenses. Walmart yesterday reported really, really soft earnings. Well, actually, they reported the strong earnings. Target reported the soft earnings, which suggests that Walmart's been better at containing its costs, whereas Target has invested heavily in driving its market share through e-commerce.

BRIAN SOZZI: Sucharita, one of the big takeaways for me-- Home Depot, Lowe's, Walmart, Target-- these are some eye-popping, eye-popping sales gains online. The businesses in many respects have held up very, very well, in large part because all these companies have the money to invest in their businesses. And where do you think the next shoe to drop is in retail?

These retailers seem to be consolidating their market share. And there's a lot of companies out there, like a JCPenney, that may go away before year end.

SUCHARITA KODALI: Oh, there's no question there are going to be more retail bankruptcies this year. There will likely be more than we've ever seen. There are certainly all of the companies that are in debt that are the mall merchants. They are the private equity-funded merchants. So there's no question that the whole middle ground of those that are heavily invested in physical real estate will be challenged.

But yeah, I mean, there's no-- there's also-- there are fortunately some success stories. Certainly the essential retailers, like Walmart and Target. And to your point, the home improvement space has done very, very well this season too. And Lowe's actually reported great earnings as well. So they, too, have seemingly managed their expenses that this season has caused through extra sanitation and supply chain challenges.

BRIAN SOZZI: Do you think there's a place for the mall in the future shopping after this COVID-19? Now last night, I briefly caught up with the Target CEO Brian Corn-- CEO Brian Cornell on a media call. I asked him, do you have interest in some of these JCPenney stores that are closing? Do you want to get on the mall?

And to me, it didn't sound like he really wanted to step up and attach more Targets to some of these malls, which to me is a red flag.

SUCHARITA KODALI: Well, the issue with the malls is that there are just too many of them still. There are about 1,000 of your traditional indoor shopping centers. And the real estate executives that I talked to think that there'll be at least 10% to 20% that will likely shake out in the next few years. And those are often some of the weaker malls anyway. They're the C and the D properties.

The A properties will still have some resonance with customers. And they will still have demand from a merchant standpoint. But it's going to take a while even for them to recover, because this has just been a terrible, terrible time for them.

And it's going to take probably at least six months for them to recoup their traffic, because consumers just aren't feeling safe and secure in these environments. And this is where we need to have new cleaning procedures, or more government oversight over how do you actually make people feel safe in these public spaces?

ALEXIS CHRISTOFOROUS: To that end, Sucharita, a company like Target, a lot of retailers now having to set aside money for just that. How do you keep the customer coming back and make them feel safe? They said that store cleanings, increased wages, and all of those costs related to the pandemic cost the company $500 million last quarter.

Are you concerned about that when you hear that they are having to spend that kind of money? And how sustainable is that for them going forward?

SUCHARITA KODALI: Well, this is just going to have to be a cost of doing business for every merchant moving forward. And this is actually a place where I do think that federal and state governments can step up to help to subsidize and create better cleaning solutions. In our future, in public spaces, whether it's offices, malls, schools, we do need to have more than just masks and Clorox wipes that keep us safe.

It has to be innovation in things like air filters, and UV lights, and state-of-the-art disinfectant tools, like electrostatic cleaners. These are things that are absolutely essential. They need to be table stakes. And they need to be subsidized by the government as well. Otherwise, we're just not going to be able to leave our houses in any reasonable way in the future.

ALEXIS CHRISTOFOROUS: All right, Sucharita Kodali, Forrester Research Retail Analyst. Always good to see you. Thanks.

SUCHARITA KODALI: Thank you.