How Retailers Are Countering Amazon's Growing Dominance

With technology having advanced in leaps and bounds, online shopping has become the order of the day. Thanks to the various mobile apps and dot.com businesses, shopping for anything is literally on consumers’ finger-tips. Talking of e-Commerce, Amazon.com Inc. AMZN is undoubtedly the first name to pop-up on anyone’s mind.

Obviously, consumers’ rapid shift to e-marketplace and Amazon’s growing dominance has hit store traffic hard. This has shaken most retailers and compelled them to adopt omni-channel strategies, which has become the need of the hour. Before getting into how retailers are coping up with the evolving consumer preferences and mounting competition from the e-Commerce king, let’s take a glance at the U.S. Retail e-Commerce Sales data.

e-Commerce Sales Data — a Major Indicator of Consumers’ Changing Preferences

Per the U.S. Census Bureau of the Department of Commerce, the estimate for second-quarter 2017 U.S. retail e-Commerce sales rose 4.8% sequentially, to $111.5 billion. On a year-over-year basis, this estimate surged 16.2%. Further, the Bureau stated that e-Commerce sales constituted about 8.9% of the total retail sales in the second quarter, marking a 40 basis points and 90 bps improvement on a sequential and year-over-year basis, respectively. Notably, these estimates included adjustments related to seasonal variations.

Amazon Trying to Gain Lion’s Share

Amazon’s popularity is attributable to its solid technological expertise, which enables it to offer consumers an unmatched level of convenience. Its user-friendly app and website, impressive product assortment, constant innovations, and seamless payment and checkout system have helped it to become consumers’ favorite shopping destination.

Further, this e-Commerce giant’s success story is highlighted by its AmazonFresh Pickup service, and its cloud computing arm, Amazon Web Services (AWS). While the former allows users to order groceries online, the latter is a provider of technological infrastructure. This biggie is also known for the online and offline features added to its bookstores.

Driven by these efforts, the company recorded 25% growth in net sales, which came in at roughly $38 billion in the second quarter of 2017. When most retailers are struggling to boost their top lines, Amazon’s growth is a clear indication of how the company trying to capture the lion’s share.

Moreover, the company’s takeover of Whole Foods Market Inc. sent shivers down major grocery retailers. Also, NIKE Inc.’s NKE plans to sell directly through Amazon raised concerns for other sporting goods retailers like Foot Locker, Dicks Sporting Goods, Inc. and Hibbett Sports, among others. Clearly, these hurdles have had a dismal impact on the Zacks Retail – Wholesale sector that currently occupies the bottom-most place among all 16 sectors.

Can Walmart & Others Catch Up to Amazon?

However, retailers are leaving no stone unturned and are following Amazon’s footsteps. The companies are also firing on all cylinders to change their operating methods.  To counter the intense competition and keep pace with the altering trends, various bellwethers are adopting omni-channel strategies to draw online traffic.

To start with major supermarket chain Wal-Mart Stores Inc. WMT, we note that this Zacks Rank #3 (Hold) company is making huge investments in e-Commerce initiatives. The company’s acquisitions of ShoeBuy, Moosejaw, ModCloth and Jet.com fall in line with its quest to build an impressive digital brand portfolio. Also, Wal-Mart partnered with Alphabet’s Google last month to enable shopping through Google Express using voice-activated service. Notably, Walmart’s e-Commerce sales soared roughly 60% in the last quarter, mainly backed by its solid online grocery business.

Target Corporation TGT is another department store retailer that is doing everything possible to stay afloat in the current scenario. Evidently, last week this Minneapolis-based company announced plans to slash prices of a number of products. Incidentally, this news came soon after Amazon decided to cut prices at its recently acquired Whole Foods business.

Apart from this, Target has been focused on developing its online business, which helped it to witness comparable digital channel sales growth of 32% in second-quarter fiscal 2017, compared with 16% in the same period last year. Likewise, Macy’s Inc.’s M digital sales witnessed double digit growth in the last quarter, thanks to its omni-channel measures. Both Target and Macy’s hold the same Zacks Rank as Walmart.

While this was for department store behemoths, we also have major apparel/shoe and sportswear companies that are responding well to the online rage. As mentioned above, NIKE recently revealed plans to sell directly through Amazon, which is most likely to enhance its market. It looks like the swoosh brand followed athletic wear Under Armour that sells directly through its own, customized page on Amazon.

Moving to popular apparel/shoe retailers, American Eagle Outfitters AEO, Abercrombie & Fitch and The Gap Inc. GPS are few among the many retailers resonating with the dot.com bandwagon. These retailers’ online sales contributed significantly to their top lines in the last quarter, underscoring their efforts to develop their omni-channel platform to reach customers in every possible way.

While American Eagle and Abercrombie carry a Zacks Rank #3 each, Gap carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Will the Efforts Bear Fruit?

The aforementioned retailers are just a few examples from the list of those names battling Amazon’s rising dominance. These retailers and their growth strides have helped the sector surge 17.3% so far this year, surpassing the S&P 500 market’s 11.8% growth. Though the present scenario is far from being rosy for retailers, continued focus on boosting e-Commerce investments will definitely help them withstand industry challenges.

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Amazon.com, Inc. (AMZN): Free Stock Analysis Report
 
American Eagle Outfitters, Inc. (AEO): Free Stock Analysis Report
 
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Target Corporation (TGT): Free Stock Analysis Report
 
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Nike, Inc. (NKE): Free Stock Analysis Report
 
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