Amazon becomes first pure-play e-retailer to crash the top 10
The current retailing revolution isn’t about overthrowing the old elite; it’s about the speed with which the old dogs are learning new tricks. One such example: Amazon.com has joined the uppermost ranks of STORES magazine’s Top 100 Retailers. Last year Amazon was beaten — percentagewise — in e-commerce sales growth by Wal-Mart. Amazon’s total online volume dwarfed Wal-Mart’s, but Wal-Mart’s 30 percent increase in web sales outpaced Amazon’s 20 percent.
“That’s just the law of big numbers,” says Bryan Gildenberg, chief knowledge officer for Kantar Retail, which compiles the annual list of the nation’s top retailers for STORES. “The combined e-commerce sales of the top 25 bricks-and-mortar retailers probably don’t equal Amazon’s. I don’t think you can say bricks-and-mortar ‘dominates’ e-commerce.”
Amazon aside, the largest e-commerce merchants remain those that started in bricks-and-mortar. The online success of traditional retailers contributes to the stability of the Top 100; only two companies on this year’s list were not in the 2013 Top 100.
Amazon added nearly $10 billion in Internet retail sales last year — no small feat, as the increase effectively matched Wal-Mart’s total web sales. Wal-Mart’s growth in e-commerce is no minor achievement: Wal-Mart is rated the No. 4 performer in online retailing, behind Amazon, Apple and Staples, according to Internet Retailer.
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E-commerce received a big boost this past winter, when the “polar vortex” kept so many people indoors. The same weather phenomenon delivered a blow not only to store-based retailers but the nation’s economy as a whole. In the first three months of 2014, the country’s gross domestic product actually shrank, the first such decline in three years, according to U.S. Department of Commerce figures, and “There is little in the GDP report to suggest anything other than a reiteration of the economy’s 2 to 2.5 percent real-growth rut,” says Steve Blitz of ITG Investment Research. “The weak first-quarter growth number sets up for a strong second-quarter growth rate, but neither this nor the first-quarter decline reflect the middling path along which this economy travels.”
The relative success of traditional retailers in the online arena comes because they are “large-scale profitable businesses well-grounded in the mechanics of retailing,” says Gildenberg. He points out that “89 percent of e-commerce is ‘commerce.’ That’s what bricks-and-mortar is good at.”
What makes a retailer?
The processes of retailing are changing so rapidly and radically that they call into question the very definition of “retailer.”
Is every manufacturer who sells directly to consumers via its website a retailer? This works well enough for Dell to land the computer-maker a spot on the Top 100 list. Several consumer product brands sell via eBay’s Plaza or Alibaba’s Tmall and similar platforms. Does that make them retailers?
What about direct sellers like Tupperware and Avon? They compete with stores selling housewares and health and beauty items. Does selling all those cookies make the Girls Scouts of the U.S.A. a retailer? Is selling tickets for sporting events or airline flights retailing?
That doesn’t begin to include digital content. Apple’s iTunes was easy enough to equate to the selling of albums or CDs: Now there are movies and TV shows available through not just iTunes but Amazon and Netflix. And where does Redbox fit in?
Are HBO, Showtime, Starz and cable TV companies retailers because they sell movies on demand? Comcast, the nation’s largest cable company, has products and services that compete directly with Netflix. Does that make Comcast a retailer?
The whole notion of subscription services for digital content is being challenged by a different model called “hard bundling,” in which content comes free to consumers with the price embedded in the cost of hardware. In the case of recent start-up Yonder, it’s free music with the purchase of a smartphone.
“If you are looking at the future of retailing, it’ll be digital content through commercial platforms,” says Gildenberg.
E-commerce embodies more than retailing. Kantar Retail has identified a number of online operators as “influencers,” businesses that have a direct impact on retailing, whether they are marketplaces like eBay and Etsy or such social media as Pinterest, Foursquare, Fancy, Twitter and Facebook. Gildenberg sees “four pillars” of digital commerce emerging that will dominate, if not control, retailing: Amazon, Apple, Facebook and Google.
“The retailer as a standalone business will soon be an antiquated notion,” he says, seeing the “pillar” companies and other giants like Comcast and Verizon acquiring more retailers as they grow and diversify. Gildenberg can also see a large mass merchant buying a digital business like Yahoo. As a result, retail will wind up being part of a “more complex ecosystem,” he says.
Channel surfing
Ascribing sales to a particular channel may be as useful to retailers as tracking sales in branch locations, but consumers shop wherever a retailer has a presence: It could be buying in one store and exchanging in another halfway across the country, ordering via mobile device and picking up at a nearby store or any number of permutations.
As it is, some 85 percent of leading e-commerce retailers with bricks-and-mortar stores use those physical units as pick-up locations for consumers who order goods online.
The e-commerce platform that retailers use — personal computers, laptops, tablets, smartphones — is not as important for selling goods as it is for marketing, Gildenberg says. “Mobile experiences are different from viewing something on a bigger screen. It’s what you’re capable of doing on mobile versus browsing on PCs or laptops. You are not really going to browse on your smartphone.”
Ultimately, consumers are buying a retailer’s merchandise: Whether it’s via Macy’s Herald Square store, Macys.com or the brand’s mobile app, the consumer purchases because of Macy’s buying and merchandising capabilities. In many ways, e-commerce is the tail wagging the retail dog: Online is where the excitement, activity and innovation are, but the vast majority of most retail sales are still transacted in stores.
With Amazon teaching the world that all kinds of merchandise can be sold online, why haven’t other e-commerce businesses replicated its success? Gildenberg says most start-ups “don’t have the experience of managing consistently to a [profit-and-loss statement] and the operational complexities can break” their business model.
Low margins can cripple start-ups, but “Amazon has learned to live with that by running other businesses profitably that underwrite its retail business,” he says. “Amazon has billions of dollars in capital, both financial and human, invested in its business and developed an e-commerce model that has operational capability, ease of use and search engine optimization unequaled by anyone else.”
Grocery’s driving force
The growth of e-commerce has fairly well bypassed groceries, in large part because the supermarket sector in this country has traditionally been so decentralized. With the exception of Walmart, no grocery chain is truly a national presence, though Whole Foods Market, Trader Joe’s and Aldi seem to be pointed in that direction.
As a merchandise segment, however, grocery remains a driving force. Eight of the nation’s 10 largest retailers drive a significant portion of store traffic with groceries. In all, 37 of the Top 100 retailers include groceries in their merchandise mixes; more than 20 can be classified as supermarkets.
Grocery is attractive enough that Amazon is tinkering with ways to make a significant push into the sector. This past spring, Amazon launched Prime Pantry, which allows members to order enough merchandise to fill a box up to 45 pounds in total weight. The box is then shipped for $5.99 plus the cost of the goods, with delivery promised within five days.
For the time being, Prime Pantry does not include fresh food and perishables, which are restricted to the Amazon Fresh program that comes with a $299 annual fee, Prime membership and free delivery on orders in excess of $35. A major feature of Prime Pantry is that it allows Amazon to offer all sorts of goods that would be too costly to ship on their own.
Another initiative in the test stage is Amazon Dash, a scanning wand consumers can use on barcodes to replenish household consumables. Amazon Dash was unveiled early this year for Amazon Fresh customers in Seattle, San Francisco and Los Angeles. As for Amazon Fresh, the company reportedly has plans to expand the program to as many as 20 additional metropolitan areas by the end of the year.
Growing into e-commerce
Wal-Mart recently announced plans to double the size of the workforce at its Global eCommerce division in Sunnyvale, Calif., which also includes video-on-demand and mobile shopping. The retailer opened three fulfillment centers last year, moving closer to its goal of delivering merchandise anywhere in the country within two days of being ordered online.
Even Wal-Mart’s recently revealed growth plans for small-footprint stores is part of the company’s e-commerce strategy. Wal-Mart says it will open 270 to 300 Neighborhood Market and Walmart Express stores this year, double the number announced last year.
“Our small-store expansion, in addition to providing customers access to a wide variety of products … will help us usher in the next generation of retail,” says Bill Simon, president and CEO of Walmart U.S.A.
The company is “trying to bridge physical and digital and help our customers get what they want, when they want it and how they want it,” Brian Monahan, vice president of marketing for Walmart.com, said at a recent e-commerce trade conference.
“Americans, on average, are spending more time with media each day than they do sleeping. That comes with 1,200 marketing messages a day, so consumers … [are] trying to decide what they want, what’s the right value for a bargain,” he said.
For much of its e-commerce volume, Walmart relies on the order-online, pickup-at-store model, but it is also working on developing an efficient and effective delivery approach. (Amazon is also working on home delivery challenges — the so-called “last mile” — after last holiday season’s hiccups that caused many gift packages to be delivered late.)
A potential key differentiator for Walmart’s in-store pickup for e-commerce orders is the pay-with-cash option, whereby customers do not need a credit or debit card to complete the transaction.
Rethinking bricks-and-mortar
Though still relatively small as a percentage of overall revenues, e-commerce sales are still inflicting damage on bricks-and-mortar operators, whether they be national department store chains or suburban shopping malls.
Stores are already becoming centers of community activity, as illustrated by the increasing number of Staples locations offering U.S. Postal Service services. In addition, some smaller communities are considering “farming out” to retailers such municipal services as obtaining permits and licenses and paying fees.
“More and more, stores will be communal gathering places, with property developers being the ones to facilitate these multi-use spaces,” Gildenberg says. “In fact, it might be the space’s brand, not the store management, that’s in charge.
“Retail will collapse into one space,” he predicts, and “the person intelligent enough to curate space to attract like-minded people in large numbers will be the one in charge.”
Date: July 01, 2014