Target and Walmart are leading a retail revolution, this analyst says

eCommerce is evolving at an incredible speed, but it’ll be up to the giants like Walmart, Target and Costco to lead the way.

So says Oliver Chen, Managing Director and senior equity research analyst covering retail and luxury goods for investment bank Cowen, who argues that many of the COVID-19-inspired changes to retail are here to stay.

The coronavirus pandemic has shifted retail innovation into high gear as stores rush to adapt their offerings to the new stay-at-home and social distancing reality. But anyone who’s been following stocks like Amazon (Amazon Stock Quote, Chart, News NASDAQ:AMZN) or Shopify (Shopify Stock Quote, Chart, News TSX:SHOP) over the past few years knows the growth of online commerce is no flash-in-the-pan trend likely to die out as soon as a viable vaccine hits the market.

Amazon has an incredible head start but the recent leaps forward from the likes of Walmart (Walmart Stock Quote, Chart, News NYSE:WMT) and Target (Target Stock Quote, Chart, News NYSE:TGT) are clearly significant, says Chen, senior retail analyst and managing director at Cowen, who spoke to CNBC on Wednesday.

“We’re excited about Target and Walmart,” said Chen. “Target had 140 per cent digital growth, that’s really impressive. And this whole theme of bifurcation: clearly the malls, JC Penney, apparel, it’s quite apparent. Month-to-month volatility has been a risk factor, too. But we like Walmart, Target, Costco.”

“Curbside pickup is the genesis of physical and digital and rethinking what retail means with merging digital and physical.”

Target has seen a healthy rise in share price over the past couple of years, climbing 87 per cent over 2018 and 2019, while Walmart Stores has risen just over four per cent over the same time span.

Currently, Cowen has an “Outperform” rating for both Target and Walmart, with a $150 price target for TGT and and $140 target for WMT.

Target reported over five million people using its curbside pickup over the quarter ended May 2, two million of whom were new. That came with a 12.5-per-cent rise in the number of items customers bought at each visit. Walmart also saw a 74-per-cent increase in US online sales for its first quarter.

“They’re really reinventing retail in terms of drive-up, curbside pickup. It’s where we’re headed, and this has happened in three weeks as much as it would have taken three years of different changes. So rapid innovation, rethinking safety and rethinking the entire store experience —this has been happening now, very quickly,” Chen said. “Target and Walmart had invested in this and it has really paid off. And we do see the big getting bigger.”

Chen says even though e-commerce has made huge advances over the past few months, the bricks and mortar store while still evolving will remain a key feature.

“The major theme here is the store and the future of the store as a hub,” Chen says. “Curbside pickup is the genesis of physical and digital and rethinking what retail means with merging digital and physical.”

“I think the future of retail involves stores. 80 per cent of Target’s online orders were fulfilled by stores and curbside pickup was very successful at Walmart and Target. So the future involves stores. The future also involves grocery and AI, and all these factors are converging, so everything’s up for consideration and we’ll probably see a lot of interesting, bizarre, relevant M&A, especially as apparel department stores need to reinvent themselves as well.”