Retailers must improve online capabilities as more consumers shop online
Last year was a mixed bag for the retail industry. Retailers celebrated the best holiday season in years, yet 2017 also had a record number of bankruptcies and store closings. Women's apparel, specialty stores, and department stores were among the hardest hit sectors, while dollar stores and off-price discount stores were able to withstand competition from online retailers. Analysts expect this trend to continue as consumers spend more of their time and money shopping online at the expense of brick-and-mortar retailers.
Amazon is the biggest beneficiary of online shopping with an estimated 44 cents of every dollar of online shopping spent at Amazon. Although its sales are one-fourth the size of Walmart, its innovations have impacted almost every sector in retail. Last summer Amazon purchased Whole Foods for $13.7 billion which gave it 466 brick-and-mortar stores and the 365 brand name. Analysts predict that the entire grocery industry will be disrupted as Amazon shakes up the grocery sector as it has done in every other category it has entered.
From books to electronics, to apparel and now groceries, Amazon is relentless in its pursuit of becoming a part of every consumer's life. There are an estimated 80 million Prime members and now with the popularity of its voice-activated digital assistant, Alexa (a.k.a. Echo), ordering from Amazon just became easier.
Brick-and-mortar retailers are fighting back by acquiring new businesses and also by partnering with others in order to better compete with online retailers. More than 40 major retailers have partnered with Google Express, an online shopping service that advertises the convenience of ordering products from "all your favorite stores at one place" including Walmart, Target, and Walgreens. Most stores offer free two-day shipping with a minimum $25 or $35 dollar purchase, but delivery times and shipping fees can vary depending on the individual store's policy.
Walmart, the world's largest retailer, has not been immune to the shift to online shopping. While it currently has approximately 80 million visitors to Walmart.com, it has been busy acquiring new businesses to attract younger and more affluent shoppers. It purchased Jet.com for $3.3 billion, then spent another $500 million to purchase popular online specialty retailers including Modcloth, an online young women's apparel company, and Bonobos, an upscale menswear designer. It also purchased outdoor specialty store Moosejaw and Shoebuy.com. These acquisitions gave Walmart access to a desirable target market as well as improving Jet.com's online offerings.
After a year of lackluster sales, Target introduced new brands and store displays while lowering its prices on thousands of items. Then to improve its ability to offer same-day delivery service, it purchased Shipt, a personal delivery service operating in 72 markets for a reported $550 million. Target expects to be able to offer same-day delivery in over half of its stores by this spring and in the rest of its stores by year's end. It also plans to spend $7 billion in the next three years to remodel existing stores and improve its online capabilities
Department stores are also ramping up their online offerings. Macy's is investing the $550 million it saved by closing underperforming stores to improve its online operations. Nordstrom's has also been expanding its online services. Currently 26% of its sales are online and it expects that number to increase to 50% in five years. Lord and Taylor, the country's oldest luxury department store, is partnering with Walmart to set up its own storefront on Walmart.com to attract new online shoppers.
Other department stores are forging partnerships with Amazon. Kohl's has partnered with Amazon to accept returns at 82 of its stores in Los Angeles and Chicago in hopes of attracting more shoppers into its stores. If successful, analysts expect Kohl's to offer this service nationwide later this year. Sears is partnering with Amazon to sell its Kenmore and DieHard brands. It also plans to integrate Amazon's voice-activated personal assistant Alexa with its Kenmore appliances.
Costco, a membership warehouse club, is improving its online delivery by partnering with InstaCart to provide same-day and two-hour delivery service in about half of its stores. Its largest competitor, Sam's Club, owned by Walmart, recently announced plans to close 68 stores and convert 11 of the stores to ecommerce fulfillment centers.
As the retail industry continues to evolve, the retailers that will be successful are those that can meet their customers' ever-changing needs. Online shopping is growing by double-digits, and by 2030, analysts predict 30% of all shopping will be done online. For some retailers it will soon be too late to play catch up, and many well-known retailers will close stores or file for bankruptcy protection. Amazon is a formidable competitor and Jeff Bezos, Amazon's founder, attributes its success to following these three rules. "Put the customer first. Invent. And be patient." Brick-and-mortar retailers must improve their online offerings or risk losing market share to Amazon and other online retailers. As Jeff Bezos warns, "Your margin is my opportunity."