T he retail industry is a many-splintered thing, with the variations clearly showcased in the annual STORES Top 100 Retailers report.
A Special Report Sponsored by
<image003.jpg>
Click on chart to see a sortable list of the Top 100 Retailers.
In this digital age, it seems remarkable that bricks-and-mortar retailers have displayed such staying power. But only two truly pure-play online merchants appear in STORES magazine's annual report on the nation's Top 100 Retailers, and it just may be that traditional retailers do all the heavy lifting when it comes to pushing goods through the consumer pipeline.
Amazon.com is the ever-growing 800-lb. e-commerce gorilla and fledglings like Warby Parker are the merchants du jour among the Twittering classes. Most people, however, still do the bulk of their shopping at Walmart, Target, Macy's and lots of supermarkets and home improvement chain stores. Truth is, more than 15 years into the dot-com revolution, online transactions account for less than 15 percent of total retail sales.
For example, five Top 100 large-format value retailers — Wal-Mart (including Sam's Club), Target, Costco Wholesale, Meijer and BJ's Wholesale — collectively generate nearly half a trillion dollars in annual sales. In contrast, Amazon.com and Dell Direct, the pure e-commerce retailers among the Top 100, posted combined U.S. sales of $38.8 billion.
In a year that saw collective sales decline 1 percent, the department stores in the Top 100 still generated average sales of $23.3 billion in 2012. Top 100 supermarkets were nearly as strong, averaging $21.2 billion in 2012 sales.
This brawny show of retail sales does not detract from what Amazon is and what it does best. As it gobbles up consumer dollars, leaving whole chains of venerable retailers as well as mom-and-pop e-commerce startups in its wake, the brainchild of Jeff Bezos aspires to be more than a retailer and more than a provider of electronic content.
Amazon dominates the world of e-commerce sales, estimated at $259 billion in 2013; that's a healthy 14.8 percent year-over-year gain, according to eMarketer. Amazon's share is estimated to be 15.4 percent of the entire e-commerce pie — and 28 percent of the 500 biggest e-commerce players, according to Internet Retailer. What's more, eMarketer says Amazon's ad revenues are forecast to increase 37 percent to $835 million this year.
Amazon's big moves
In the past, Amazon's gaudy quarterly growth figures were dismissed in some quarters as representing relatively small amounts of real dollars. Not so anymore, says Kantar Research's Anne Zybowski, who points out that Amazon has been adding sales at a faster rate and by a greater amount.
Zybowski, vice president of retail insights at Kantar, says Amazon added about $7 billion more in sales since 2010 than Wal-Mart, and should keep pace with or outperform Wal-Mart over the next five years.
Amazon is doing many things you would expect a retailer to do, from spending money building warehouses to developing new products for its house-brand of electronic devices — and creating new content for those devices. But non-retail Amazon is heavily involved as virtual landlord for all the merchants in its Marketplace online shopping mall and is continually upgrading and expanding its technology-for-hire Web Services business.
Amazon also moved more heavily into the drug store space with the launch of Amazon.com/50ActiveLiving, a virtual store filled with health, wellness, beauty and personal care products aimed at consumers 50 and older.
Earlier this year, Amazon purchased the Goodreads book-selling web operation and launched a memorabilia store called Entertainment Collectibles with merchandise inspired by movies, television shows and celebrities. In a more recent deal with Viacom, Amazon won the exclusive right to stream Nickelodeon programs, including such shows as "Dora the Explorer" and "SpongeBob SquarePants."
After years of testing its AmazonFresh delivery service in its home market of Seattle, Amazon is expanding in the grocery arena: The delivery concept debuted in Los Angeles last month, offering products from butchers, fishmongers, greengrocers and other merchants.
Points of differentiation
Amazon's Prime service, in existence since 2005 and offering such perks as free two-day shipping on most orders and access to Amazon Instant on-demand videos, has long been a draw. Yet according to Complete Blog, Prime customers are willing to pay for shipping on 39 percent of their orders, which indicates that Prime membership's primary advantage is often ignored.
The opacity surrounding whether a customer is actually purchasing from Amazon or a third-party merchant using Amazon's Marketplace platform means there is virtually no seller-buyer relations beyond the transaction. Such practice extends to eBay, Google and other online exchanges and virtual malls, where shoppers don't seem to know that eBay and Google aren't selling the goods being purchased.
E-commerce platform providers are attempting to blur the lines and connect directly with consumers. eBay and Kate Spade recently partnered on pop-up stores in New York City featuring a touchscreen storefront window, combining eBay's mobile shopping expertise with its PayPal payment program in a bricks-and-mortar location.
While the distinctions among and between e-commerce platforms and physical stores can be significant, the consumer makes use of any and all channels available, suggests Zybowski. "It's not about online or off-line, it's about multi-channel," she says, adding that "multi-channel means more than a physical store with a website."
Digital commerce has three components, Zybowski explains: traditional desktop or laptop computer-based online shopping; tablet-based e-commerce; and mobile commerce using smartphones and other communications devices.
"M-commerce is not about to plateau. It will continue to grow because consumers use their phones" to compare prices, navigate stores and for real-time social purchase consulting, in addition to making purchases, she says. "It really is a different type of digital commerce from computer-based and even tablet-based."
Other than Amazon.com and Dell, which shed its physical retail connections, there are no "pure" e-commerce businesses large enough to qualify for the Top 100 Retailers. (Non-store retailer QVC is not considered a "pure-play" e-commerce retailer due to its shop-at-home broadcast component.) Zybowski attributes that, at least in part, to the acquisition activity of traditional store-based retailers like Wal-Mart and Target as they grow their own e-commerce businesses. A more pertinent example was the move made last year by TJX, which spent $200 million to acquire Wyoming-based online merchant Sierra Trading Post.
Some online merchants like Overstock.com and Newegg.com might gain such scale, but many growing online retailers have also begun opening bricks-and-mortar stores, including Bonobos, Warby Parker and Piperlime.
Merchants conversant with retailing in the physical world choose to emphasize their store-built brands to make a point of differentiation. Wal-Mart, Macy's, Walgreens and a lot of other bricks-and-mortar operators are using their stores as aids to selling goods in whatever channel customers choose to shop, with the reassuring notion that "You know where you can find us if your Internet connection goes down."
Building in-store and online
Wal-Mart has been one of the busiest of the store-based retailers promoting technology. Many of the innovations come from @Walmart Labs, the San Bruno, Calif., subsidiary the Bentonville behemoth established to tap into Silicon Valley resources.
Wal-Mart expects to ring up about $9 billion in e-commerce sales this year — only about 2 percent of its worldwide volume, but roughly one-sixth of Amazon's worldwide retail sales.
One of the tools developed by @Walmart Labs is the proprietary search engine Polaris, which is "on par or even slightly better than Amazon," according to Matt Nemer, senior analyst at Wells Fargo Securities. The heart of Wal-Mart's e-commerce program is the site-to-store service launched six years ago and tinkered with ever since, where shoppers pick up orders at a Walmart store and don't have to pay any shipping charges.
Walmart has also unveiled an app, Scan & Go, which enables users to scan and bag merchandise and pay at a self-checkout kiosk after presenting the data from their phones. Some 10 percent of Walmart's U.S. stores offer the service; there has been no decision on whether to expand the pilot program as yet, although Wal-Mart spokesman Ravi Jariwala did say that the company was ready to test "mobile coupons and mobile gift cards that can be used as part of that Scan & Go experience."
Wal-Mart "will continue to invest not only in how the customer wants to shop but how they want to receive the merchandise," says CFO Charles Holley. "[W]e think we are competing very well from where we started from. We have a lot of work to do to make sure we are more efficient in getting the products to the consumers, but we feel like we have the tools to go do that."
By many measures, Macy's is the second-largest traditional retailer in terms of e-commerce volume, a position upon which it seeks to keep building.
"We are accelerating progress in omni-channel strategies at Macy's and Bloomingdale's to bring together our efforts in stores, online and mobile in a manner that satisfies emerging shopping patterns and capitalizes on the strength of our inventory regardless of where the customer demand occurs," Terry J. Lundgren, chairman, president and CEO of Macy's, told shareholders in February. "And we are engaging shoppers in a manner that engenders loyalty and builds our business with each individual customer."
Last year, sales exploded at Macys.com and Bloomingdales.com, jumping 41 percent for all of 2012 and 47.7 percent in the holiday-season fourth quarter. The company said online sales positively affected its same-store sales for the year by 2.2 percentage points.
Even so, Macy's is not cutting back on store-based retailing: In fact, it will spend hundreds of millions of dollars on its Herald Square flagship alone. At more than one million sq. ft. of selling space and billed as "The World's Largest Store," parts of the multi-building facility date back to 1902. In June 2013, Macy's unveiled the second phase of a series of renovations that it says will be completed by this year's holiday selling season. For the first time, windows along Seventh Avenue will showcase views into the store, and the Seventh Avenue and Broadway buildings will be linked at the mezzanine level as the mezzanine, main and second floors are remodeled.
Convenience, price stability
Other bricks-and-mortar retailers are also looking to exploit their inherent advantages. Convenience is certainly one of them — meaning not just that the store is right around the corner, but also that the items come home when they are purchased.
For some retailers, the convenience message includes being part of the community. This is particularly true of independent stores grouped together under a national banner. A number of such alliances are large enough to rank among the Top 100 Retailers, including Health Mart and Good Neighbor in the retail pharmacy/drug store arena and True Value and Ace in the hardware/home improvement segment.
Another point of emphasis in combating the eBay and Amazon Marketplace mentalities is price stability — one of the features that first gave rise to chains selling everything from groceries to housewares and apparel to office supplies. If something advertised in the morning paper was featured at $19.99, the consumer knew that would be the price when she walked into the store. In the algorithm-ruled world of e-commerce, such price stability can no longer be taken for granted.
Face-to-face human interaction can also be used to stores' advantage, whether it is Nordstrom's renowned customer service, do-it-yourself project advice at The Home Depot or the personal shoppers' assistance at any number of apparel stores. Target has moved in this direction by introducing consultants at 200 locations this summer.
"In an often crowded and sometimes daunting marketplace, Target's Beauty Concierge program ensures that guests receive the friendly, personalized counsel they need to purchase their favorite beauty products at affordable prices," says Bryan Everett, a Target senior vice president.
