The easy narrative over the last decade has been that Amazon.com (NASDAQ: AMZN) has been eating Target (NYSE: TGT) and Walmart's (NYSE: WMT) lunch in retail. Consumers are spending more online, which bodes well for Amazon, and neither big box retailer has been nimble enough to react.
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In the last year, though, the narrative has started to change. Both Target and Walmart are launching services that leverage their unique positions in the market rather than fight the company head to head. If they're successful, it could change how we view big box retailers long-term.
Target looks very different today
The advantage big box retailers have always had over Amazon is the ability to immediately get the items customers need. The problem is that it's a pain for some of us (me) to go shopping in-store. Target is starting to figure out how to leverage its stores, while taking the shopping experience out of it.
Drive Up is a new offering that's being rolled out around the Minneapolis/St. Paul area that allows customers to order online and pickup at a store without ever going in: just park in one of the designated Drive Up spots by the entrance and a customer employee will load your items in your trunk for you.
Offerings like Instacart, Restock, and Grand Junction are delivery platforms that also leverage the store, connecting them to delivery services that can get goods to customers. Eventually, Target should be able to offer thousands of items to be delivered on your schedule from local stores.
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Walmart is taking on Amazon head on
Walmart has the same car loading service for groceries, and allows for pickup at retail stores for other items. But the company's real progress has come in e-commerce, where it's going after Amazon head-on. After buying Jet.com and improving its own online store, e-commerce sales jumped 50% in the fiscal third quarter. The company is really pushing to compete on price and service with Amazon online around the world.
Like Target, the goal is to leverage the store experience to augment the online buying experience. When customers can benefit from buying items like groceries online and picking them up at a store, Walmart will be able to offer that service -- an advantage over Amazon.
Target and Walmart are holding their own now
In the fiscal third quarter, revenue at Target and Walmart increased 1.4% and 4.2% respectively, which is far better than the periodic negative comparable sales over the last few years. As you can see below, Amazon is growing more quickly, but that's to be expected.
Where Target and Walmart have an advantage over Amazon is turning that revenue into profits. You can see above that Amazon's operating margins have plunged since 2010, largely due to a need to increase marketing and fulfillment spending.
Target and Walmart won't ever be the growth companies Amazon is, but they could be competitive with the online retailer and generate strong profits along the way. For shareholders worried that Amazon is going to destroy big box retailers, that might be enough to get excited about these retail stocks again.
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