Americans turned to Walmart and Home Depot for supplies and do-it-yourself projects as they stayed close to home at a time when new cases of virus surged, resulting in soaring sales for their fiscal second quarter.
Walmart's online sales nearly doubled in the fiscal second quarter, helped by an expansion of its online delivery services. Sales at US locations opened at least a year jumped 9.3 per cent, the company reported on Tuesday. With customers not going out to eat as much, they were cooking at home, spurring sales of groceries. Customers were also buying items to set up their home office or improve their outdoor area, store executives said.
Home Depot, the nation's largest home improvement chain, reported a 23.4 per cent increase in global sales at stores opened for at least a year on Tuesday, helped by a frenzied pace of do-it-yourself projects. That’s almost twice the 12.2 per cent increase that industry analysts had projected.
However, department store chain Kohl’s reported an adjusted loss that was smaller than expected and revenue fell 23 per cent during the fiscal second quarter. The results came as Kohl’s worked to reopen its 1,100 stores after temporarily closing them all at the start of the pandemic.
“Some parts of retailing are thriving; some parts are being devastated," said Neil Saunders, managing director of GlobalData Retail. “It's demonstrating a dramatic shift of how and where shoppers are spending their money. People's lives are revolving around the home. That means food, home improvement and comfortable clothes."
Consumers had already begun to rely on Walmart, Home Depot and other essential retailers like Target and Amazon as lifelines for necessities during the start of the pandemic. Walmart’s online sales, for example, rose 74 per cent for the fiscal first quarter. That trend accelerated to 97 per cent in the second quarter and broadened the gap between traditional retailers, many of them anchor stores at the mall, and big box operators like Walmart and Target.
Kohl's chief executive Michelle Gass told reporters on a call Wednesday that the chain, based in Menomonee, Wisconsin, should benefit from mostly being located at strip centers. It's also looking to capture sales from rivals that are closing. She also says that its home furnishings are resonating even more as shoppers are focusing on their home. During the second quarter, 50 per cent of online sales were fulfilled in stores.
“We will be a beneficiary of consumers adopting more casual lifestyles and shopping more digitally," Ms Gass told analysts on a call.
With unemployment in the US hitting frighteningly high levels, Walmart’s ability to deliver low-priced food, clothing and electronics strengthened its structural advantages further.
Net income for Walmart, based in Bentonville, Arkansas, reached $6.48 billion (Dh23.8bn) in the quarter, or $2.27 per share. Earnings, adjusted for one-time gains and costs, were $1.56 per share, easily outpacing Wall Street projections of $1.22, according to a survey by Zacks Investment Research.
The world’s largest retailer posted revenue of $137.74bn, also exceeding expectations.
Home Depot, based in Atlanta, earned $4.33bn, or $4.02 per share, in the quarter, which was also far stronger than the per-share projections of $3.70 from analysts. A year earlier it earned $3.48 billion, or $3.17 per share.
Home Depot’s revenue hit $38.05bn, far exceeding the $34.94bn Wall Street was expecting, according to a Zacks Investment Research survey. The company easily topped last year’s revenue of $30.84bn for the three months ended August 2.
However, surging sales took place as the US rolled out massive assistance plans for the millions who had lost jobs or who were furloughed.
The $600-a-week federal unemployment check that had been sent to roughly 28 million laid-off workers is gone. And a $1,200 stimulus check that was sent to many Americans in April and May appears to be a thing of the past. Negotiations in Congress on a new economic relief package have collapsed and there is no evidence of an agreement on more aid, at least in the near future.
That had been a concern for analysts trying to predict how that will influence where Americans shop. Already, Walmart is seeing the expired benefits having an impact on its business.
“As the benefits from stimulus wane towards the end of the quarter, we saw comp sales settle into a more normal range,” said chief executive Doug McMillon. He told analysts on a call that another round of stimulus money is necessary for small businesses.
Also, Walmart and other retailers are facing soaring costs related to the pandemic that include mostly extra pay for workers on the front lines. Walmart said that costs related to Covid-19 hit $1.5bn during the fiscal second quarter, up from nearly $900m during the fiscal first quarter.
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
Cultural fiesta
What: The Al Burda Festival
When: November 14 (from 10am)
Where: Warehouse421, Abu Dhabi
The Al Burda Festival is a celebration of Islamic art and culture, featuring talks, performances and exhibitions. Organised by the Ministry of Culture and Knowledge Development, this one-day event opens with a session on the future of Islamic art. With this in mind, it is followed by a number of workshops and “masterclass” sessions in everything from calligraphy and typography to geometry and the origins of Islamic design. There will also be discussions on subjects including ‘Who is the Audience for Islamic Art?’ and ‘New Markets for Islamic Design.’ A live performance from Kuwaiti guitarist Yousif Yaseen should be one of the highlights of the day.
Our legal columnist
Name: Yousef Al Bahar
Advocate at Al Bahar & Associate Advocates and Legal Consultants, established in 1994
Education: Mr Al Bahar was born in 1979 and graduated in 2008 from the Judicial Institute. He took after his father, who was one of the first Emirati lawyers
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Labour dispute
The insured employee may still file an ILOE claim even if a labour dispute is ongoing post termination, but the insurer may suspend or reject payment, until the courts resolve the dispute, especially if the reason for termination is contested. The outcome of the labour court proceedings can directly affect eligibility.
- Abdullah Ishnaneh, Partner, BSA Law
