In retailers’ vernacular, it shouldn’t surprise you if they view Amazon.com (ticker: AMZN) as a four-letter word. That’s because most businesses can’t seem to work around the curse Jeff Bezos’ company has brought the retail industry.
“It (Amazon) is the greatest disruptor in the history of the retail business,” says Howard Davidowitz of Davidowitz & Associates, a retail consulting and investment banking firm based in New York.
In the past year, the Standard & Poor’s retail sector index dropped 17 percent while Amazon’s stock jumped 67 percent. Amazon’s pricing, delivery and products have eclipsed all others in the industry, resulting in dramatic declines from retail stalwarts such as Macy’s (M), Nordstrom’s (JWN) and Kohl’s Corp. (KSS).
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Can brick-and-mortar retail stocks compete in an Amazon world? Here’s four ways that they’re taking on the internet giant.
Omni-channels. Nearly every brick-and-mortar retailer has one answer to the Amazon issue: build an omni-channel. This is the buzzword for the idea that no matter where you are — in the store, online or on your phone — there’s a way to buy the item you want. And traditional retailers have the benefit of having in-store pickups for customers that order online.
But this hasn’t led to results.
“The profitability of selling online, it’s not as great” as many hoped, says Joseph Feldman, an analyst for Telsey Advisory Group. “It’s wonderful for the consumer. From the seller’s perspective, the cost to ship is not cheap.”
The belief for many was that they could just use the inventory they had, develop an e-commerce site, cut labor costs and margins would improve. But shipping remains a huge hurdle. And even Amazon struggles with this; its operating costs surpass even Wal-Mart Stores (WMT).
What sets Amazon apart from the competition is its market share. The income that Amazon receives allows it to take risks in shipping — such as experimenting with drones and robots that potentially could cut shipping costs even more — that are simply beyond its competitors’ reach.
“They (Amazon) have a reach and ability to do things no one else has,” Davidowitz says.
The next target for Amazon is apparel. Some analysts estimates that by next year, Amazon will outsell Macy’s in apparel. Macy’s CEO Terry Lundgren, who invested $1 billion to improve its omni-channel in 2014, says that Amazon won’t be able to react to all the returns that come with selling clothing.
“I think Amazon knows that,” Davidowitz says. “I think he [Bezos] figures once he gets all the market share, then he will get the costs down.”
Macy’s, on the other hand, has seen sales fall 4 percent compared to 2014 numbers.
The shopping experience. People still like to go to the mall. That has become clear, even if while shopping in the stores, shoppers are often price-checking the products online. Even Amazon is exploring opening kiosks and brick-and-mortar bookstores.
So why not capitalize on that? Grocery retailer Shoprite, for instance, is offering yoga classes in some stores, and other companies are trying to make their offerings look more pleasant to the eyes and the senses.
Wal-Mart is revamping its grocery aisles to highlight fresh food. Target Corp. (TGT) is testing a beacon system that sends shoppers deals to their smartphones as they walk through certain areas of the store.
“They’re trying to improve the experience,” Davidowitz says. “If this is what the customer wants, you better do it.”
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Interestingly, the emphasis on the in-store experience comes as many companies are reducing payroll. Macy’s cut 4,000 jobs this year, Nordstrom’s 400 jobs and Gap (GPS) is closing nearly 75 stores (mostly overseas) and layoffs could follow. Companies will have to balance having a lean payroll with making sure customer service doesn’t decline.
Operating in the right market. Williams-Sonoma (WSM) owns West Elm and Pottery Barn, and now gets nearly 30 percent of sales from furniture, Feldman says. It hasn’t had an issue with placing its offerings online, because “for years, the consumer has been trained to pay for shipping costs for furniture.”
While revenues haven’t grown as fast for the organization, it still saw a 5.9 percent jump in sales last year.
Furniture, party-themed retailers such as Party City Holding Co. (PRTY) and groceries haven’t suffered as much from Amazon’s might. Nor has ultra-luxury products, where the manufacturer’s name and brand matters. If it’s a “type of product that needs service,” then those remain safe, Feldman says.
And dollar stores, like Dollar General Corp. (DG) and Dollar Tree (DLTR), have very little fear of Amazon’s massive reach.
What do all these have in common? They serve a very specific niche in the market or they serve people that need supplies immediately.
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Amazon hasn’t turned its focus to these areas yet. Then again, as drones and robots use grows, you never know.
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The Retailers Guide to Beating Amazon.com (AMZN) originally appeared on usnews.com
