walmart (WMT -0.61% ) is the largest retailer in the world, so he had a unique perspective on how shopping habits have changed as COVID-19 containment measures spread across the country. The overall impact on sales was positive for the company, although spending jumped in categories such as labor, cleaning and sanitation, and digital execution.
On a conference call with Wall Street analysts, Walmart detailed the huge spending shifts executives noticed this quarter, which often fluctuated dramatically from week to week. They broke down into a few clear stages of pandemic-related demand.
Let’s take a closer look.
Step 1: Stay safe
Walmart first noticed growing demand for consumer staples like groceries, paper goods and surface cleaners. The shift to home cooking and cleaning has been massive as shoppers braced for what was likely to be weeks of shelter-in-place recommendations. “For many of them [staple] items,” said CEO Doug McMillon, “we were selling in two or three hours what we normally sell in two or three days.”
Staple food providers like Campbell’s Soup have benefited from this move, as have specialists in cleaning products such as Clorox and Procter & Gamble. The security theme also surfaced in Walmart’s declining customer traffic and its increase in average spending per visit.
Step 2: Find entertainment
Once basic needs were met, demand shifted to entertainment, home exercise and home improvement. “Puzzles and video games took off” around this time, McMillon said. Walmart no longer sold bicycles and struggled to stock enough home exercise equipment.
The channel experienced particularly strong demand for educational games, marketed by Hasbro and his peers. These products have helped parents meet new responsibilities in the education and entertainment of their children.
Step 3: Invest in the house
The next stage involved projects and purchases aimed at improving the house, where the whole family spent much more time. “We may see clients looking to upgrade their indoor and outdoor living spaces,” management said.
Walmart has noted growing demand in its home category, which includes furniture and decorations. Rivals in this space, including Wayfair (W 2.32% )observed a similar tip. Other big winners from this buying phase include Lowe’s (MOO -1.08% )which has just recorded double-digit sales growth in the first quarter.
Step 4: Splurge
The latest wave of pandemic buying could be called the “indulgence“. It was supported by a few factors, including the arrival of federal stimulus checks and the fact that significant parts of a typical household budget – such as allowances for gasoline, entertainment and dining expenses – had all disappeared for several weeks.Many consumers found themselves with extra money in their pockets.
“Discretionary categories really kicked in towards the end of the quarter,” McMillon said, as Walmart sold things like televisions, apparel, sporting goods and toys. “Call it relief spending,” management explained.
Other winners in this niche likely include Costco ( COST 1.33% )which is expected to report results on May 28 and typically sells many discretionary products.
Meanwhile, big shifts in demand are causing logistical challenges and added expense for Walmart, which reported a 6% inventory decline that created numerous out-of-stock situations in the first quarter. The chain also had to mark down products, especially seasonal clothing, that were missing their demand niches.
But overall, the retailer responded fairly quickly to unprecedented pressures and opportunities during the first weeks of the global spread of COVID-19. This success has allowed Walmart to provide – almost always – what its customers need and want since mid-March.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.