Target, Walmart outbox department stores in reshaped world

NEW YORK (AP) — The future of the post-pandemic retail economy in the U.S. looks both boxy and digital.

The pandemic is dividing the industry into potential winners and losers, with Wall Street looking more favorably at e-commerce retailers and companies with well-established online sales.

That means potentially a lost year for Macy’s and Nordstrom, while Walmart, Target and Amazon keep growing, analysts say.

The most obvious reason that big-box stores are weathering the economic storm better than department store competitors is that Target and Walmart have remained open, while mall-based retailers like Macy's were forced to close.

The sheer size of the big-box competitors, offering everything from food to clothing, helped qualify them as essential businesses that were allowed to continue trading.

Customers still wary about heading into crowds might even consider the big-box stores, with their signature open layout and wide aisles, as a more comfortable place to shop.

Meanwhile, after years of building up solid distribution networks and digital sales they've also made it easier for people to order and pickup items or have them shipped directly to their homes.

Consumers will likely continue to do a large part of their shopping on computers and smartphones even as physical stores reopen to customers. That leaves companies with both a strong physical network of stores and solid online operations in a much better position to take advantage of the swelling e-commerce trend, according to a report from credit insurance company, Euler Hermes.

That trend could make it even more difficult for department stores focusing on clothing and apparel to catch up after exiting the crisis with depleted balance sheets.

“U.S. apparel and footwear retailers are undergoing a sector-wide shock that will push weak players into default and reverberate into 2021,” Moody's senior analyst Raya Sokolyanska said in a report.

The virus pandemic nudged an already struggling J.C. Penney into bankruptcy this month. It was the fourth major retailer to take that measure since the pandemic struck, along with Neiman Marcus, J.Crew and Stage Stores. They were already struggling with competition among each other as many of their mall-based locations saw less foot traffic. Competition from big-box stores and online retailers like Amazon added even more stress to their bottom lines.

Meanwhile, many of the larger department stores now have less money to invest in new operations, including their digital and distribution capabilities.

“This will further increase the priority of digital investments, widening the divide between companies that have the means to invest and those with limited financial resources,” according to Moody’s.