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There is no denying the detrimental effect of the COVID-19 pandemic on the retail industry. It has forced some to permanently shutter stores, scale back growth plans, reduce workforce or, in some cases, file for bankruptcy.

But the past six months have also allowed an unlikely set of winners to emerge: At Home, Wayfair and Overstock.

Mass merchants like Walmart, Target and Costco — which remained open and stocked essential products throughout the crisis — posted sales gains, while many discretionary retailers reported steep losses as consumers pulled back on spending. However, the unique reality of the pandemic also boosted some retailers in categories traditionally considered discretionary when consumers realigned their focus.

As employers sent their employees to work remotely and schools opted for online learning, consumers began to spend a majority of their time within their households. As a result, the home sector experienced a sales boost from consumers looking to invest more into their new at-home offices and classrooms: Interactive whiteboard, web camera and office chair sales surged in recent months.

"We're seeing the spending shift away from other discretionary categories like travel, entertainment, restaurants to things that are home related, whether it be home improvement or home goods. That's driving strong sales for all these companies," Wedbush analyst Seth Basham told Retail Dive in an interview.

Despite years of misses, some retailers thrived amid uncertainty

According to Wedbush research, the home goods and home improvement market make up a roughly $500 billion industry, just a fraction of what other industries represent, which Basham said comes in close to $1.6 trillion. However, with consumers traveling less, the travel and entertainment industry is down 50%, which "leaves a ton of dollars that could flow into home-related categories and drive strong growth," he added. And for companies that already had a strong e-commerce presence, like Wayfair or Overstock, the impact was even greater.

The shift in spending is further evidenced by monthly sales data tracked by the Department of Commerce. Overall spending was up 11% year over year in July, with general merchants experiencing a 4% increase and furniture and home retailers seeing a 1% year-over-year rise. At the same time, electronics and appliance retailers saw sales decrease 3%, while apparel sales plunged some 20%.

Wayfair, At Home and Overstock sell goods squarely in those well-performing categories, but they weren't necessarily set up for success at the start of the crisis.

Wayfair, like other direct-to-consumer companies, has struggled with profitability since filing for its initial public offering. In fact, until its most recent quarter, the online home brand failed to turn a profit every quarter since its public debut back in 2014.

Contributing to its profitability struggles is the high cost to acquire and retain customers. However, with consumers naturally looking for products to outfit their homes since the start of the pandemic and many avoiding brick-and-mortar stores, customer acquisition has been easier for online merchants like Wayfair.

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"The flood of people shopping online has led to much lower customer acquisition costs," Basham said. Customers are "seeking out places to shop for home goods online rather than Wayfair going out and having to attract them as aggressively," he said. In addition to higher organic traffic though, media costs have also come down in recent months, further lowering acquisition costs.

The retailer reported that in the second quarter ended June 30, its direct retail net revenue increased 84% to $4.3 billion, while its active customers increased 46% to reach more than 26 million users. According to Edison Trends data, those customers made twice as many online orders in July at Wayfair than those of Overstock and Ikea combined. But perhaps the biggest gain for the retailer during the quarter was its net income of $273.9 million, representing the first time it has posted a quarterly profit since its public debut in 2014.

"Our strategic long term investments positioned us well to serve our customers and to quickly adapt during a challenging time. We experienced unprecedented demand in Q2 and saw record numbers of new and repeat customers choose Wayfair," CEO Niraj Shah said in a statement, noting the retailer's owned logistics network and supplier partnerships among factors contributing to its strong results. "The plans that we put in place in late 2019, combined with these factors, translated to a powerful profitability inflection."

Overstock, like Wayfair, operates primarily online making it a particularly attractive shopping destination for consumers looking to shop digitally. Prior to the pandemic, the retailer had racked up losses over the years and was forced to pull back on its marketing spend in an attempt to restore profitability. However, that resulted in lost sales.

Fast forward to the second quarter of 2020, and the retailer's position is different. In the quarter ended June 30, Overstock's retail-specific net revenue soared 109% to a record $767 million. Its new retail customers tripled year over year, according to CEO Jonathan Johnson, and it posted a net income of $34.4 million from a loss of $27.6 million last year. Between February and May, Overstock's online orders grew 167%, according to Edison Trends.

Johnson said that its "customers are buying our core products — home furnishings — from the safety of their homes as part of the country's new normal. If business continues as I expect, our Overstock Retail business will achieve sustainable, profitable growth this year."

And though At Home relies heavily on its physical stores for sales — which were temporarily forced shut in March — it still experienced significant sales gains in its most recent quarter because of how it adapted and responded to the crisis.

The retailer piloted its buy online, pickup in-store service to 28 stores in January with plans to expand to additional markets later in the year. However, it expedited that rollout as the pandemic hit in order to serve its customers.

"At Home had limited online capabilities going into the coronavirus crisis," Moody's Vice President and Senior Analyst Raya Sokolyanska said in an email. "However, the company has been able to roll out buy online/pick-up in store, curbside pick-up and next-day delivery options on an accelerated schedule."

And while At Home does have a relatively large footprint — both in terms of store count and square footage — it wasn't necessarily a setback for the retailer. Much like mass merchants, At Home's stores are cavernous, appealing to consumers' pent-up demand while looking for a safer in-store shopping experience where they can abide by social distancing guidelines, Basham and Sokolyanska said.

"Once stores reopened, At Home also benefited from its large store size and broad selection, which accommodate social distancing and trip consolidation," Sokolyanska said.

According to foot traffic analytics firm Placer.ai, customer traffic increased 4.8% year over year in May, 34.1% in June and 20.6% in July. The firm also noted that during the week of Aug. 3, traffic was up more than 35% compared to last year.

At Home reported net sales increased 50.5% year over year to $515.2 million during its second quarter, while its comparable sales rose 42.3%, which it attributed to strong demand following its stores reopening, as well as the introduction of omnichannel services, like buy online, pickup in-store. Its net income increased a whopping 761% to $89.4 million from $10.4 million during the same period last year.

"We delivered the best quarter in the Company's history in terms of comparable store sales, profitability and free cash flow, as well as our lowest leverage ratio since our IPO," At Home CEO Lee Bird said in a statement. "We believe many of the key factors driving our strong performance have continued into the third quarter of fiscal 2020."

To say the retailer benefited from the pandemic, might be an understatement. Last year, At Home group was reportedly exploring options, including working with Bank of America to shore up interested buyers for a potential sale of its business.

How long can the recent boost last?

Some of the consumer behavior brought on by the pandemic — i.e. shopping online — will stick even when the crisis subsides, Basham predicts. "There's been a behavioral shift that's been accelerated because of the pandemic," he said. "I'm not suggesting that consumers are going to shop the same level online as they did when all the stores were closed, but I think the behavioral shift has led to an acceleration in interest in shopping online, which will persist."

But it's inevitable that some consumer behavior will revert back to pre-pandemic trends, Sokolyanska said, and when it does, she expects some of those retailers gaining now to take a hit. "As consumer spending shifts back to more normal patterns, we expect At Home's growth to abate and potentially reverse," she said. "However, this will be mitigated by share gains due to At Home's low price points."

And for all those customers gained in the past few months, retailers will need to remarket to them in order to retain them, Basham said. "Creating offers that are compelling and engaging in terms of content, I think is going to be a very important step for all of these companies, some are better than others at it," he added pointing to At Home's new loyalty program, which allows it to collect data on its newer customers in order to target more personalized marketing toward them.

As more brands build out an online presence, this will be especially critical for digital natives like Wayfair and Overstock. Wayfair's most recent success seemed "like an exception rather than the new normal," GlobalData Retail Managing Director Neil Saunders said in comments about its latest quarterly results. "Without the favorable tailwinds that have blown more customers its way, Wayfair will start to revert to its old model of having to use extensive advertising and marketing to keep customers coming back. Against a backdrop of reduced volumes and shopper numbers, this will drive down profitability and likely push the company back into the red."