A slew of retail bankruptcies is refocusing attention on the difficulties brick-and-mortar companies face in competing with Amazon, but several like Walmart and Target are flourishing under the new environment and even challenging the dominance of the e-commerce giant.
Payless recently announced it would file for bankruptcy and shutter all its North American stores, while Gymbore is also reportedly planning to file for its second bankruptcy in as many years. Others, like Macy’s, J.C. Penney and Sears, are all closing hundreds of stores across the U.S.
The common thread among many of the struggling firms, according to Instinet analyst Simeon Siegel, is debt.
“It’s very hard to kill a retailer,” he told Fox Business. “It can often be that the sole difference between a surviving retailer and a bankrupt retailer is whether they owe someone money.”
But central to the success of companies like Nike, T.J. Maxx, Costco and others, expert says, is also a shift in focus from following Amazon’s lead to figuring out how to leverage their own assets to offer alternatives to the e-commerce giant.
“The ones that have made a difference, they truly understand the different channels that they play in,” said Farla Efros, president of consulting firm HRC Retail Advisory. “You have to stop pacing Amazon and you have to start saying ‘How am I going to survive within this world of Amazon?’”
Walmart, for example, is succeeding with curbside pickup for groceries, given that most Americans live within 10 miles of a store. Nearly 11 percent of Walmart shoppers used the program in January, according to Cowen analysts.
But groceries are a low-margin business for retailers, and logistics costs for the Bentonville, Arkansas-based company are outpacing its boom in e-commerce – up 43 percent in the fourth quarter of 2019 – driving Wall Street concerns that profits are not increasing enough to recoup the investments in fulfillment centers and other improvements.
CEO Doug McMillon said he hoped shoppers would begin to purchase a more lucrative mix of products online.
"We're trying to add to a place where we got a repeatable healthy mix of business online,” he recently told investors. “We're pedaling fast trying to make that happen and disappointed it's taken us long as it has.”
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Despite the focus on online, in-store shopping remains critical. And in sectors where consumers still prefer to purchase in physical locations, sales are booming. Revenue at Ulta Beauty, for example, grew 16 percent in the third quarter of 2018, while profits increased to $572 million.
“If you were the best at something, it’s not any longer good enough. You’ve got to leverage those leadership advantages and compete in another way as well,” said Barbara Kahn, professor marketing at the Wharton School of Business at the University of Pennsylvania.
One problem facing the industry, however, is how to ween customers off of the sale prices that helped drive traffic in the aftermath of the economic crisis.
"Retailers today are all trying to slowly pull-back," Efros said. "You can’t pull the band-aid off because there’s a whole customer base that will freak out."
Here are other retailers who are succeeding in the Amazon era:
The Minneapolis-based company has been investing heavily in store upgrades and its e-commerce capabilities, including allowing customers to purchase online for in-store pickup. Target is also capitalizing on lucrative partnerships with celebrities, including Victoria Beckham and Chrissy Teigen.
“We see the benefit of all the strategic initiatives we are pursuing, including our remodel program, efforts to rejuvenate our portfolio of owned and exclusive brands, the rollout of new fulfillment options focused on delivering ease and convenience,” CEO Brian Cornell told investors in November.
Target in January said its same-store sales during the 2018 holiday shopping season grew 5.7 percent, well above the 3.4 percent from a year ago. Online sales also grew 29 percent between November and December.
The Beaverton, Oregon-based retailer is under fire after star Duke basketball player Zion Willamson suffered a right-knee injury because his Nike high-tops split open during Wednesday’s game against North Carolina.
Still, the outlook is strong for the sporting goods company. Revenue in the three months through November grew 10 percent to $9.4 billion, as net income grew to $847 million.
In 2017, Nike agreed to begin selling some products directly on Amazon after resisting for years, partially as a way to blunt the many third-party retailers who also sold the company’s goods on the platform.
Despite the shift to online, Nike clearly sees the value of investing in its brick-and-mortar presence. It unveiled in 2018 a new, state-of-the-art flagship store in New York City that allows customers to check out on their phones and deliver products directly to dressing rooms, further integrating the two channels.
Despite the bustling economy and higher take-home pay as a result of the GOP-led tax law, U.S. consumers appear to still crave a good bargain. And as department stores like Macy’s and J.C. Penney’s continue to decline, companies like T.J. Maxx are seeing sales grew significantly.
Revenue at the Framingham, Massachusetts-based retailer increased 12 percent to $9.8 billion in the third quarter of 2018, spurred by a 7 percent rise in same-store sales. Profits rose nearly 19 percent to $762 million.
“They have their low price, they can offer you significant savings,” Kahn said of discount retailers. “But the other part of course is the treasure hunt. Customers never know what they are going to find. It’s part of the thrill.”