For brick-and-mortar retailers to survive and thrive in the age of giant online merchant Amazon.com Inc. (AMZN), they must develop differentiated products and services. Among those that have what it takes are Wal-Mart Stores Inc. (WMT), The Home Depot Inc. (HD), Best Buy Co. Inc. (BBY), Nordstrom Inc. (JWN) and Lowe's Cos. (LOW), according to Barron's. The task is daunting, since online retail sales are growing at a 15% annual clip, and, as of April, account for 22% of all general merchandise purchases excluding food, gasoline, autos and restaurants, per U.S. Bureau of Census data cited by Barron's. In turn, an estimated 40% of these online sales are garnered by Amazon, Barron's adds.
While online merchants offer convenience, traditional in-person shopping has its own advantages. Touching and scrutinizing goods are important elements of many buying decisions. Moreover, many people still enjoy traditional shopping for its own sake. Meanwhile, as Barron's points out, the late 1990s were rife with hasty predictions that big-box stores such as Wal-Mart soon would wipe away all competition, much as today some observers are too quick to conclude that virtually all retail is headed online.
As for Wal-Mart, it has responded to the dual challenges from online sellers like Amazon and membership-only, bulk-selling warehouse club stores like Costco Wholesale Corp. (COST) by acquiring Jet.com. Barron's attributes much of Wal-Mart's 63% rise in digital sales during the latest quarter to this move, while Costco.com registered only 12% growth. Through its Sam's Club warehouse stores, Wal-Mart already has a brick-and-mortar sales channel competing with Costco.
Barriers to Shipping
That's a big advantage for home improvement retailers Lowe's and Home Depot. Much of what they sell is not conveniently sized for shipping, and their customer base includes professional contractors who prefer to buy in-store, to be sure about exactly what they're getting. Consumers faced with the sudden failure of a key home appliance, or contractors short of supplies in the midst of a job, are unlikely to wait for a shipment, even when feasible. Additionally, on Thursday, the National Association of Realtors forecasted that this year sales of existing homes will be at their highest level in 10 years, Barron's reports, another positive indicator for these building supply and home improvement retailers. (For more, see also: What's Driving the Boom in Home Building Stocks.)
Not a Dinosaur
In a recent report, Credit Suisse hailed Nordstrom as "best in breed" among department stores. Brad Liff, managing director at investment research firm Bespoke Investment Group, LLC, concurs, telling Barron's that Nordstrom is the best-situated and most likely to succeed among its peers. Bespoke’s “Death By Amazon” index was created in 2014 as a way to track the performance of the companies most affected by the rise of Amazon.com.
Among the things that set Nordstrom apart, according to Barron's: top-notch customer service, an excellent in-store experience and exclusive products for fashion-focused customers. Customer service at Nordstrom, Barron's adds, includes placing online orders for customers who can't find what they want in-store. For those who write off department stores as an outdated concept, Barron's cites Nordstrom as a prime counter-example. (For more, see also: Why These 5 Consumer Stocks Will Outperform.)
Last One Standing
Electronics retailer Best Buy was left for dead by many observers just a few years ago. However, with the demise of Circuit City, it pretty much has the field of electronics-only stores all to itself, TheStreet noted last year, making it the only destination for many people who want to touch and feel new gadgets before buying. Meanwhile, by aggressively matching the prices offered by Amazon and big-box retailers, Best Buy has increased the odds that consumers who look there will buy there, Barron's says. Moreover, its Geek Squad tech support team allows Best Buy to compete on service. TheStreet mentions that Best Buy also is a big seller of large appliances, positioning it to profit from a housing recovery.
Flash: Amazon Opens Bookstores
As proof positive that traditional brick-and-mortar stores are not headed for complete extinction anytime soon, Amazon already has opened six physical bookstores in the U.S., with six more currently planned, according to the company's website. That's quite an ironic twist, given that Amazon, which started as an online book seller, is responsible for the demise of numerous physical bookstores, both independents and chains such Borders, while venerable bookseller Barnes & Noble Inc. (BKS) continues to strain under the competition. Amazon also is rolling out other physical stores, in other merchandise categories, both in the U.S. and abroad, as reported by The New York Times, and by Fortune.
Online Clothier Gets Physical
While the press is filled with reports of physical retailers retreating to online-only sales, even some smaller companies are bucking the trend. One such example is MM.LaFleur, a New York-based seller of business attire for women. Founded in 2011 by Sarah LaFleur, who previously worked in private equity, the company is rolling out physical stores after operating strictly online, a business model that seemed to fit its target market of time-constrained professionals, the Washington Post reports.