E-commerce Stocks Are Down, but Physical Stores Are Resilient. Here’s Why.

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Big retailers are selling off with the broader market Friday, as investors also worry about what downbeat results from e-commerce players mean for consumer spending. Yet outlooks from bricks-and-mortar companies may not be as dour.

Earnings season is well under way, and e-commerce stocks have been crushed, from

Amazon.com

(ticker: AMZN) to

Shopify

(SHOP) and

Wayfair

(W), as investors were spooked by the companies’ downbeat commentary and guidance.

That wasn’t the message the market was hoping to fear, given concerns about consumer spending overall. Not only is inflation hurting Americans’ spending power, but after two years of pandemic life, people are often choosing to use what little discretionary funds remain for experiences rather than goods.

No wonder then that investors are worried about the outlook for big traditional retailers, including

Walmart

(WMT),

Target

(

TGT

),

Home Depot

(HD), and

Lowe’s

(

LOW

), which will usher in the next big wave of retailer earnings the week after next.

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That said, it may not be another bloodbath. Part of the reason e-commerce stocks have been hit especially hard is that more consumers are returning to bricks-and-mortar locations. The pandemic showed the value of a physical network of locations, as distribution centers and curbside pickup hubs, and now some shoppers may be returning to stores for socializing and experiences.

At the very least, people are still visiting Target more, according to data compiled for Barron’s by Placer.ai. Weekly visits comparing 2022 to prepandemic 2019 showed that traffic increased to Target every single week since the start of the year through late April (the most recent data available), often by double digits.

Walmart is more of a mixed picture, with three-year comparisons turning negative, down around 2% to 2.5% since late March. The company has expanded its e-commerce presence as well, which could still point to stronger sales, although its lower income consumer has been hit harder by inflation.

Therefore, the big box players, especially Target, may be able to offer some contrast to the e-commerce players. Certainly it may be a challenging quarter, but at least foot traffic to physical locations hasn’t cratered, and Target has moved from strength to strength in recent quarters.

Home Depot and Lowe’s look poised to have a tougher go. While both started the year off very strongly, the recent spike in mortgage rates, which has added to the already high levels of housing unaffordability, has hurt weekly traffic at both companies on a three-year basis this spring, according to Placer.ai data.

Of course, investors are already fairly skeptical of the home-improvement market, as evidenced by the big discounts for the companies’ stocks, so expectations are low. Commentary will likely be key: If the big home-improvement players can offer a better outlook, that could help the shares even if their quarterly results are lackluster.

As Barron’s has noted previously, there are catalysts for the sector beyond the housing market that could support demand, including the need for ongoing home maintenance, and the increased popularity of hybrid work schedules that are keeping people at home more beyond the end of the pandemic. However, this may be a bit more of a show-me story for investors.

Ultimately, questions remain as to how long consumers can keep spending in the face of inflation. A tight job market has kept wages rising, if not as quickly as prices, and consumers do have greater savings, even if those are dwindling. Traditional retailers aren’t immune to the problems facing e-commerce, but they may not be feeling them as acutely. Once again, stocks will likely trade on company forecasts.

Write to Teresa Rivas at [email protected]