Social distancing guidelines enforced by top retailers including Amazon.com Inc.'s Whole Foods Market Inc., The Kroger Co., and Walmart Inc. could play a role in curbing store sales growth in the coming quarters as the new rules limit capacity and potentially drive transaction volume down, experts say.
In recent weeks, the retailers have enforced rules to keep shoppers and staffers safe from the coronavirus, creating a far different shopping environment from the pre-pandemic days when crowds of consumers regularly streamed into stores to shop, socialize and impulse-buy.
Experts say the new guidelines will result in fewer but bigger shopping trips and less spend among some consumers compared to spending prior to the outbreak. The rules will also force retailers to rethink entire operations, from store layouts to technology.
How far in-store sales decline will likely vary by location and depend on how well each retailer adjusts to their social distancing strategies, whether they automate shopper traffic flow and can successfully lure budget-conscious customers as stay-at-home directives remain in place, experts say.
Even so, in-store sales still have the potential to decline this year and 2021, said R.J. Hottovy, a Morningstar analyst who covers Amazon, in an interview.
"I think in-store transactions are going to suffer at least until next year and probably longer than that," he said. "It's tough to convince a customer to go out with all these guidelines in place. I think this is going to weigh on the confidence of a lot of consumers even when restrictions start to ease."
Walmart has rolled out a series of social distancing measures, including store sign markers and one-way movement through aisles.
Sales could further decline given that 22 million people have filed jobless claims amid a looming recession, experts say.
"It's a combination of not going as much, to trading down, to people just reducing what they are purchasing," Sucharita Kodali, vice president and principal analyst at Forrester Research, said in an interview. "The less you go to the store, the less you are going to buy extra stuff. No matter how you cut it, it's about less spend."
Shoppers will, of course, still go to stores, especially given that grocers are considered essential businesses and restaurants remain closed, a situation that could shift would-be dine-in dollars to in-store sales, experts say.
Retailers like Kroger saw upticks with in-store traffic in March as consumers stocked their pantries but "we have seen that dissipate and go down largely because of social distancing," said Ethan Chernofsky, vice president of marketing for Placer.ai, a foot-traffic analytics platform.
After initial spikes, Albertsons Cos. Inc., Kroger, Safeway and Publix Super Markets Inc. saw foot-traffic declines of 11.2%, 9%, 17.4% and 13.4%, respectively, during the first week of April compared with that period a year ago, according to an analysis by Placer.ai. Meanwhile, Whole Foods' foot traffic dropped by 53% and Trader Joe's by 47% during that week, compared with a year ago.
Chernofsky said Whole Foods, which has enforced rules that limit capacity within stores, is getting hit because it is a more expensive grocer concentrated in urban areas such as New York, where universities and employers are closed. Whole Foods declined to comment for this story. Albertsons, which owns Safeway, also declined to comment. Kroger, Publix and Trader Joe's did not respond to inquiries.
Kroger, Walmart and Amazon have also been the prime beneficiaries of an uptick in demand for online goods and tend to do better than their peers in an economic downturn, Chernofsky said in an interview.
In-person spending in this environment has been volatile. Kroger saw a 36% uptick for in-store spending the week ending March 15 compared to the same week a year ago, a decline of 7% for the week ending March 29 compared to the year-ago period and 10% year-over-year growth the week of April 5, according to an analysis of credit and debit card transaction data from Facteus, a payments-based business intelligence solutions provider for clients including retail companies and investment banks.
Costco Wholesale Corp. saw in-store spending rise 35% the week ending March 15 versus the same week a year earlier. But spending declined 12% the week ending March 29 from the year-ago period and dropped 10% year over year for the week ending April 5. Sales slowed during the second half of March due to social distancing rules, including limiting the number of customers who can enter a store at any given time, said David Sherwood, Costco's assistant vice president of finance and investor relations, in a trading statement call on April 7. In-store spending was up 11% year over year for the week ending April 19, according to Facteus.
Walmart, Publix and Safeway saw in-store spending rise 21%, 25% and 32% year over year, respectively, the week ending March 15 followed by weekly fluctuations through early April, according to Facteus. Spending at Walmart rose 14% year over year for the week ending April 19.
In-store spending at Target grew 18% year over year during the week ending March 15 but shrank 11% for the week ending March 29 compared to the year-ago period, according to Facteus. In-store spending was up 22% year over year the week ending of April 19.
Target declined to comment and Walmart did not respond to inquiries.
Any losses with in-store sales could potentially be offset by online shopping, though it remains to be seen how much, experts say. Target and Walmart, for example, have robust e-commerce offerings and pickup and delivery services that will work to their advantage, experts say. "I think that's where a lot of the consumers feel a lot safer right now," said Morningstar's Hottovy.
Spending patterns are changing as retailers enforce new protocols designed to limit capacity and discourage shoppers from lingering.
For example, Walmart announced in April a series of measures, including allowing no more than five customers for every 1,000 square feet at a given time, instituting one-way movement through store aisles and encouraging customers to bring the fewest number of people per family necessary to shop. Target's measures include adding floor signage to encourage shoppers to stay six feet apart, installing partitions at all registers and limiting occupancy based on a store's square footage. Kroger has installed partitions at checkout lanes and registers at pharmacy counters and in-store Starbucks Corp. cafes.
Longer-term, retailers will make it easier for consumers to shop by eliminating long lines outside of stores with booking systems to manage shopper flow at peak times, experts say.
Retailers may set up mechanisms that allow consumers to sign up for designated times to shop in stores, allowing grocers to track traffic patterns, stock items more efficiently and possibly gain higher units per transaction, said Matthew Katz, managing partner and practice lead in the retail and consumer practice of SSA & Co., a global management consultancy.
Consumers who sign up for designated times to shop may view those shopping trips as more valuable, Katz said. "There are fewer people, they know I'm coming," he said. "We're advising our clients with a digital perspective to anticipate what that customer wants."
These changes will require investments by retailers as they step up the technology to enable queuing systems for customers standing outside the store, but it may be a worthy expenditure, said James McCann, CEO of McCann Investments, which invests in early-stage companies in grocery tech, in an interview. "People are going to get very very tired of standing in the rain and the sun," he said.
Grocers may also rethink store layouts to maximize space and better regulate in-person traffic, he said.
"In the U.S., many stores are massively underutilized — that's a good thing in this case because the stores aren't very busy anyway," McCann said. "So they are going to instigate flow management in the stores so there are no bottlenecks, no bunching across the aisles. They will encourage people to use their devices to scan so there isn't a line at the checkout.”
Stores that execute the technology and make it easier to shop will take market share away from other stores, McCann said. "If the shopper used to shop at five stores is now only going to shop at two with all these restrictions, are you going to be one of the two or not?" he said. "It's probably going to amplify the winners and losers in the game."
Meanwhile, stores with already low foot traffic or out-of-stock items that implement new distancing policies could face store closures, resulting in excess real estate. "You're not going to wait in line for a bad experience," Katz said.
A store's location also plays a role in its fate. Stores near lots of restaurants may be "absolutely hammered," and max out capacity as customers choose to stock up on groceries and cook at home instead of ordering delivery or takeout from nearby eateries with closed dining rooms, McCann said. Stores in the countryside where there are no restaurants may not see any change in traffic except that their customers have less to spend, he said.