The pandemic accelerated and likely solidified consumers’ adoption of e-commerce. Companies with robust e-commerce platforms have the revenue to show for it; big retailers such as Amazon and Walmart saw their sales skyrocket by billions of dollars during the pandemic.
But for a number of retailers without a strong online presence, the pandemic presented a unique challenge. Stores like Aldi, TJ Maxx, Costco, Dollar General, and others depend heavily on in-person sales. Despite lower foot traffic, many of these retailers not only survived the pandemic, but are now expanding. Here’s what these businesses have in common, and why they’ll keep betting on in-person sales for the foreseeable future.
Part of the reason goods are so much cheaper at so-called discount retailers is that they’ve got smaller markups than the big brands. Costco, for example, marks up its products just 11%, compared to 25% or 50% at other grocery stores; Primark, a British discount clothier, has an estimated 40% margin on its famously cheap items, compared to 57% at competitor Zara. The costs of putting merchandise online, storing products in warehouses, and the logistics involved in packaging and getting them to customers can easily eat through those slim margins, which could make e-commerce not financially worthwhile for these consumers.
“What Primark offers consumers does not seem to be something that can be easily replicated online,” reads one recent UBS report. “As long as there is demand for £2 t-shirts, people will have to go to stores.”
Many of these retailers have unique or cost-cutting inventory strategies. Some might buy items in bulk, or acquire excess inventory from name brands. They don’t have much inventory on hand, or even seek to limit the number of products available in their stores.
These strategies, which typically help make discount retailers competitive, also can make it hard for these retailers to predict what inventory they’ll have—and how much of it—ahead of time, making it less worthwhile to put the items on their web site.
From clothing stores like TJ Maxx to grocery chains like Costco, the strategy to get customers to physically put an item in their shopping cart is often called a treasure hunt, in which consumers scour the store’s constantly changing inventory for well-priced items that are often not the ones they came in to look for. The joy of stumbling upon a desirable object is much harder to replicate online, though some retailers have tried.
Others, however, are doubling down on the in-person strategy that has brought them success so far. “In today’s environment, we believe this kind of shopping experience can serve as a break in the day, and as some ‘me time’ for our customers, and in the future will continue to be a major draw for consumers to our stores,” CEO Ernie Herrman, CEO of TJ Maxx’s parent company TJX, told analysts last year.
In 2021, when some retailers were closing stores, many discount retailers are opening them. They’re hoping the business strategies that allowed them to weather the pandemic will be viable in the future, even as e-commerce becomes a mainstay of most other businesses.