Review: The Magic Money Tree and Other Economic Tales
“What I shall argue”, writes Lorenzo Forni in The Magic Money Tree, “is that the main principles of economics remain unchanged; it is only the circumstances in which they operate…
There was good news for Minnesota based retail giant Target today. As KSTP reports:
Comparable store sales at Target soared 24.3% in the second quarter, more evidence that big box retailers have turned them into essential points of supply during the pandemic.
Target, Walmart and Home Depot have all benefited as Americans limit their trips to a few stores and focus on stay-at-home activities, from cooking to do-it-yourself projects and decorating.
Comparable sales — which include sales at stores opened at least a year and online sales — set a record for the three-month period that ended Aug. 1. Online sales surged 195%, while sales at established stores rose 10.9%.
Americans have relied on big box retailers like Walmart, Home Depot, as well as Amazon, since the start of the pandemic. Walmart’s online sales, for example, rose 74% in its fiscal first quarter. That trend accelerated to 97% in the second quarter.
Target gained $5 billion in market share in the first half of the year. Its sales of clothing, which suffered a 20% decline during the fiscal first quarter as shoppers focused on other necessities, moved to double-digit growth in the second quarter.
Drive-up services increased more than seven-fold. And sales related to in-store pick up increased more than 60% during the quarter.
Target earned $1.69 billion, or $3.35 per share. That compares with $938 million, or $1.83 per share for the year-ago period.
Adjusted for one-time items, it earned $3.38 a share, topping the $1.63 a share expected on average by industry analysts polled by FactSet.
Revenue rose 25% to $22.7 billion. Analysts were $19.97 billion.
This isn’t surprising. I’ve written previously about how, during the lockdown, every day was Big Business Saturday. As Dave Orrick of the Pioneer Press asked Steve Grove, Minnesota’s Commissioner of Employment & Economic Development:
I can go into Menards and buy a kite for my kid, but I can’t go into Hub Hobby and do the same. If Hub Hobby were open, it would accomplish more for social distancing, no?
But it isn’t just small stores like Hub Hobby that suffered. As Americans limit their shopping trips, they go to generalists, not specialists. KSTP again:
That’s not a good sign for clothing chains, which struggled before the viral outbreak and are now further in peril. More than two dozen retailers have filed for bankruptcy protection since the start of the pandemic, including names like J.C. Penney, J.Crew and Neiman Marcus. That brings the total so far this year to more than 40 retailers, more than double the number for all of 2019.
But some generalists are doing better than others. Bloomberg reports:
Rival Walmart Inc. said Tuesday that government stimulus checks provided a boost in its second quarter, but the benefit faded by July. In contrast, [Target CEO Brian] Cornell said that although relief checks helped goose demand, Target’s shoppers kept buying well into July even as the stimulus’ impact waned. “The stimulus was a factor, but even as it waned we saw strong comparable-sales growth in June and July,” he said. “And we are off to a very solid start in August.”
The differing performances of Target and Walmart seem to be down to the fact that they have different customers. As Joshua Fruhlinger wrote for Thinknum in 2018:
When normalizing for thousands of locations throughout the United States, we found that Walmart Supercenters tend to be located in lower-earning zip codes, while Target stores open in top-earning areas. This likely reflects Walmart’s prolicivity to open Supercenters in more rural areas while Target goes after higher-earning urban and suburban communities.
As a result, in 2015:
Target location zipcodes average a median income of $78,964 to Walmart’s $72,725, an 8.6% difference. This income gap is even larger when looking at Walmart Supercenters, which average a median income of $63,488. That’s a massive 24% difference in median income.
So, Target is doing better than Walmart because its customers are doing better. And its customers are doing better because the better-off are doing better. The chart below shows how the pandemic has impacted different people in very different ways. For workers earning over $32 per hour ($66,560 annually), employment fell slightly but is now back above the levels of January. For workers earning less than $14 per hour ($29,120 annually), by contrast, employment fell by 32% from January to April and, in June, was still 20% below the January level.
This shows, yet again, that Covid-19 and the policy responses to it have been, in the main, economically regressive.
John Phelan is an economist at the Center of the American Experiment.
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