As retailers enter the fast pace of the 2012 holiday season, many industry observers will be scrutinizing the performance of top brick-and-mortar merchants.
Two questions dominate:
· How far consumers will open their purses and wallets this season?
· How much will they spend online rather than in stores?
The answers will say something about the current state of consumer confidence and the health of the economy. But the implications are likely to go far beyond the current holiday season.Online retailing has been growing by double-digit percentages for years, even as same-store sales growth for brick and mortar retailers has averaged closer to 3%. This year, online sales are projected to grow 15% to 17% and may command as much as 10% to 12% of total industry sales. That’s compared to about 3% only five years earlier.For most other retailers, the bigger question should be this: How and to what degree are the fast-changing expectations and shopping preferences of consumers likely to affect the operations of smaller retailers? Four big brick-and-mortar retailers recently announced important adjustments to their multichannel strategy. They include these companies:
· Wal-Mart, Inc.
· Best Buy, Inc.
· Toys R Us
· Staples, Inc.
They shared the ways they plan to cope with intensifying competition – mainly from Amazon.com, the world’s biggest online retailer. Their new directions underscore the extent of changes that have been well underway for many years. But pressure on them has intensified of late because of continuing slow comp-store revenue growth since the Great Recession. Wal-Mart offers same-day delivery Wal-Mart Stores, Inc., the biggest retailer in the world, announced in mid-October that it will offer same-day delivery for orders customers place online. Wal-Mart will pilot the service in five U.S. metro areas through the holidays. Customers will pay a flat fee of $10, regardless of order size. Wal-Mart will fulfill orders from stores, not from warehouses or distribution centers. This is in a move to blunt the competitive edge of Amazon.com, which began offering same-day delivery in 10 cities in 2009. Amazon charges $8.99 per shipment, plus $0.99 per item. Analysts speculate that Amazon will offer the service to more cities soon. While Wal-Mart has the advantage of operating thousands of stores across North America, it costs three to four times more for a retailer to pick orders from a store versus a well-automated distribution center.
Best Buy tries price matching
Meanwhile, Best Buy, the world’s largest consumer-electronics chain, pledged to match the prices of 20 online retailers for some categories of merchandise under certain circumstances. Best Buy will also offer free home delivery on merchandise that is out of stock in stores.The moves are aimed at thwarting competition from online retailers. Best Buy has been hit hard by online competition. The company’s same-store sales have declined for every quarter in the past 30 months, except for one. The sharpest decline in revenue has occurred in consumer electronics and entertainment, two categories most affected by online competition. The company recently hired a new head of e-commerce, whose job will be to improve pricing and the performance of the company’s website. He will also build an online sales model that is well integrated with Best Buy’s store operations.
Toys R Us offers early layaways, online reservations, and local pickup. Toys R Us, the world’s biggest retailer of toys, announced holiday layaway plans in September. This was a month earlier than in years past. Company officials said the early move has two goals:
· to enable parents to reserve toys that are likely to be in short supply
· to allow cash-strapped parents more time to pay for their purchases.
The obvious over-arching goal is to compete more effectively against Amazon, Wal-Mart, and other major discounters online and offline. Toys R Us also announced two additional measures for the holiday season and maybe beyond:
· The company will open 150 to 200 seasonal pop-up stores, same as last year, with 24 located inside Macy’s stores.
· Customers will be able to place orders online and pick up at stores.
Staples shrinks store space to focus online
Staples, the biggest office-products retailer in the United States, announced in September that the company will close about 15% of its brick-and-mortar space to focus on growing the company’s online business. The move is necessary, analysts say, because so many customers have shifted their purchase of office supplies online. Many customers now buy items such as computers and printers from online retailers such as Amazon rather than from Staples, Office Depot or OfficeMax. Smaller retailers, take heed These are not the rumblings of a distant war. The battles now raging among retail giants are prompted by powerful trends that appear likely to shape the future of much of the retail industry. Heat from Amazon may appear to be the immediate threat. But an even bigger force is also at work. Fast-growing numbers of customers love the economy and convenience of shopping online. And they’re bringing their high expectations to their brick-and-mortar shopping experience.
The biggest of retailers are coping with both the blessing and the curse of operating large numbers of stores. They have a great local presence in the dominant retail markets. But they also incur the very high cost of running stores whose revenue is declining or growing only slowly. Slow growth and intense competition are forcing them to rethink how their stores will offer value to customers. Even retailers with much smaller numbers of stores will soon face the same quandary.
What other measures do you think are likely to blunt competition from online retailers?
For ideas on how retailers can cope with fast-changing customer expectations and the shifting role of stores, please download a complimentary Jesta I.S. white paper here. [Link to landing page for white paper on technology in stores.]
“Best Buy Focuses on Web Integration,” Joan E. Solsman, Wall Street Journal, October 10, 2012, B9B.
“Online Holiday Sales Come Into Focus,” Andria Cheng, Wall Street Journal, October 10, 2012, B9B.
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