3 E-Commerce Winners for Your Watch List

E-commerce has been a huge growth story through the pandemic. But some companies with brick-and-mortar roots are doing much better than others at competing in this niche.

In this video from “The Five” from Motley Fool Live, recorded on Oct. 12, Fool contributors Jose Najarro, Brian Withers, and Demitri Kalogeropoulos highlight three winners here: Home Depot (NYSE:HD) stock, Tractor Supply (NASDAQ:TSCO), and Walmart (NYSE:WMT).

Brian Withers: This is another story that Jose brought to the table, and this is about a company called Shipt, S-H-I-P-T. You may have seen them shopping at your local grocery store with their Shipt shirts. I’ve always wondered, it makes sense that Shipt has taken off and helped groceries have a grocery delivery service, and they’ve really executed well. Well, they deliver orders for more than 130 retailers, whether it’s grocery, Petco, CVS Health, and they roughly cover 80 percent of the households in the U.S. and about 5,000 cities.

You’ll never guess that they’re owned by Target. Pretty impressive move by Target, very forward thinking, I think. They bought Shipt in 2018. I was wondering, is there another classically brick-and-mortar retailer that is making great strides to embrace e-commerce or certainly the omnichannel, which is both online and brick-and-mortar model? Jose, why don’t you to take this one first?

Jose Najarro: I think it’s crazy how I didn’t know Target owned that segment. That was pretty interesting reading that from the article. To me, the retail that has impress me overtime outside of Best Buy, which you’ve just talked about will probably be Walmart. Walmart earlier on they try to do that competition against Amazon. Jet was the first e-commerce website that they bought.

I think now they’re doing everything through walmart.com, but in their most recent quarter to comp sales, they grew about 5.2% compared to same time last year. For the two-year stack pre-COVID levels, they grew 14.5%. They are expecting their fiscal year 2022 to have comp sales growth about 5% to 6%.

Walmart has done a lot. Many people might not know, but if you are some form of online seller, you can use Walmart’s marketplace, you can register, apply and join their marketplace and sale some goods. Pretty much just like you sale some other goods in Amazon or some of these other online places. They created that channel there. The next thing they’ve done is pretty similar to many of the retailers now with the online order, in-store pickup, curbside pickup, Walmart has done that pretty well.

Finally, I want to say just the overall movement to Walmart+, which is their similar to Amazon Prime membership, even though I don’t have cable in my YouTube ads and stuff like that, I get a lot of Walmart+ shipping advertisement that’s become super strong, especially now as holiday seasons are probably coming up, they’re really trying to promote that Walmart+.

There’s no minimum on orders for free shipments. You can purchase numerous stuff and have it delivered to your place. Walmart would be the one I’m looking at. I think that’s all the information I want to share with that one.

Withers: Yeah, they’ve been pretty impressive. I remember early on visiting [laughs] the Walmart warehouses and it was an embarrassing first foray into the business, but they’ve really come a long way and they’ve really made it a strong leading business that they have. Demitri, what do you have?

Demitri Kalogeropoulos: One I’d like to highlight is Home Depot,  another massive retailer. They made this pivot several years ago.

They’ve been really aggressive into that omnichannel pivot, but I think it’s still worth highlighting right now whenever you think of a company that really nailed it on that omnichannel world, Home Depot always comes to mind. This is of course, the leading home improvement retailer.

They have about a $140 billion in annual sales over the last 12 months. They added $12 billion of new revenue in just the first half of 2021, and that’s on top of huge growth last year.

The company is obviously in an upswing, but e-commerce has been growing even faster. That segment doubled in the last few years, and it was already in that 7% or 8% or maybe closer to 10% of sales.

It might be somewhere closer to a quarter of sales right now. But they’re below the line there because so many sales can happen online and then shift to the store or people end up making their orders and then going to the store to pick it up.

In fact, Home Depot does this pretty well, just like Target, where 55% of their online orders were fulfilled through the stores, and that also includes a high proportion of people that just make the order and then drive to the store. There are a lot of benefits there for investors.

Home Depot has one of the highest efficiency return on invested capital numbers in the entire industry and from the entire stock market. I’m always amazed to see that number, its operating margin, profitability is about 15% of sales, which is great and compared to around 12% for Lowe’s, and then we have all these customers picking up their items that they order online and they go to the store and that invariably they’ll end up spending little bit more while they’re there, to pick up a couple of other things.

Home Depot’s average order right now is $82 per visit and that’s up from $74 a year ago. Some of that has to do with the lumber prices going up, but that’s been a general trend. They’ve been maximizing that e-commerce lift.

That’s just a great story, a massive retailer in an industry that you might think, hey, this is bulky stuff. You probably won’t be able to compete with online.

Who is going to ship a ton-and-a-half of concrete or something like that? But Home Depot that hasn’t hurt them and all they found ways to do it for some to the stores in a big way. I like this e-commerce store here.

Withers: Yes. I’m just been super-impressed with what Home Depot has done over the last several years and the investments that they’ve made. I want to say five years ago, they made a commitment to upgrade their technology stack across the company, both from creating much more customer-friendly, they call it One Home Depot, where whether you went online or whether you went at the store you have the same great service.

They had to connect all those legacy systems together so that the online ordering websites will be able to read the inventory in the stores and maybe Jose’s picking it up in the store while I’m ordering it over the web and it is the last one. You don’t want that stuff to happen. There’s absolutely a ton of work that Home Depot has put into to make all that work and I think it’s paid off for them considerably.

The company that I’ve been impressed with throughout the coronavirus, and certainly it’s also made a lot of strides in becoming more omnichannel focused is Tractor Supply Company, ticker symbol TSCO.

They had this last quarter their best-ever e-commerce sales in the history of the company. They have 10.5% same-store sales growth and 13% overall sales growth last quarter, and they’ve implemented things like curbside pickup, where one of the biggest things that consumers buy from Tractor Supply is animal feed, and so it’s for the life out there that rural farmers and whatnot, and so during the coronavirus, they implemented this curbside pickup where you come and you call and then the store employees come out with the big bags of food and drop it into the back of your track.

Certainly a convenient way to do that, as well as they have very tight supply chain strategy to what’s in the stores versus what’s online. They call the online store “the infinite aisle.” They have probably 3-5X number of products online that they do in their stores.

Certainly, and they can deliver them to the stores as well as delivered to them to your home. It’s been a really big boost for Tractor Supply and help them continue to create loyal customers and meet them in this ever-increasing customer demand, and we’ve all gotten used to Amazon being and I can just order it on my app and it’ll be here in a couple of days, and Tractor Supply is keeping up with them from that standpoint, so pretty impressive.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning 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 richer.