Heavyweights Battle Over The Future Of Retail

Is the future of retail online, or will it remain in brick-and-mortar stores? It is a common topic of speculation among the retail industry, with some claiming that brick-and-mortar stores are a dying breed and others claiming that they matter now more than ever. Amidst this fray, two of America’s largest retailers (Amazon and Wal-Mart) are doing battle, with each looking to improve their weak spots and leverage their strengths in both spaces. Wal-Mart, the National Retail Federation’s number one American retail chain, had over $500 billion in sales worldwide in 2014, almost five times as much as the next largest retailer (The Kroger Co.). Amazon came in at number nine, with just over $83 billion in global sales.

Amazon, which has revolutionized the online retail industry, has been testing its hand with brick-and-mortar locations since 2014. In true Amazon fashion, they have gone about their stores a little differently from the competition. Many of Amazon’s physical store locations are near college campuses, focusing on the technological and textbook needs of students. Amazon has also opened a general bookstore in Washington, Amazon Books, which features hand-picked booklists and displays but does not post prices. Instead, customers must scan a barcode using their smart phones. The barcode brings them to the Amazon web page for that product, which shows the price, summary and customer reviews.

Amazon has tested several ways to surmount two of its biggest obstacles: impatient consumers and lost packages. Even with free 2-day shipping for its Amazon Prime members, consumers have demanded more immediate delivery of goods. In response, Amazon created “Amazon lockers”, a self-service approach to shopping, where the consumer purchases a product online and picks it up from a designated area. The lockers are located within other retail businesses (often convenience stores) and are sometimes open 24-hours, allowing consumers to pick up or return their items on their own schedule, without worrying about signing for packages and allowing for more convenient returns.

Amazon has also moved into the grocery sphere with its Amazon Fresh option -- fresh groceries and produce delivered directly to customers. But Amazon has been unable to offer this service outside of a few major metropolitan areas (New York, Seattle, and Northern or Southern California are the only current options). This could be changing, thanks to Amazon’s proposed “drive-thru” grocery stores, rumored to be opening in Silicon Valley. Customers would be able to order groceries online, drive to the grocery store and pick them up through a dedicated drive-through lane. This system will combine the convenience of online shopping, with the autonomy of self-service, with the customer choosing when to arrive, rather than having to wait at home for delivery.

While Amazon is playing catch-up in the brick-and-mortar space, Wal-Mart is looking to improve its online presence. Wal-Mart has thousands of stores in the United States, offers in-store pick up for customers who purchase goods online, and has already opened drive-through grocery stores in several major markets. However, while Wal-Mart has the infrastructural capacity to rival Amazon, its online sales are low. Wal-Mart plans to invest $2 billion in the next two years to increase its online presence. On Black Friday, 2013, Wal-Mart received just over 20 million website visitors, while Amazon received almost twice that many visitors (38.4 million).

Wal-Mart has already started the “Shipping Pass”, which promises members free 3-day shipping for $50 per year, a price half of what Amazon charges its Prime members. To enhance these efforts, Wal-Mart has built several new warehouses dedicated entirely to shipping goods, in the hopes of cutting down on shipping time and costs. At the same time, with 70% of Americans living within five miles of a Wal-Mart store, Wal-Mart will continue to rely on and leverage the in-store pickup option, as research shows that when consumers pick up their purchase in the store, 70% will buy additional items during the same trip.

In the end, while retail industry experts may differ as to which end of the spectrum will thrive, the strongest retailers will be the ones who are able to provide multi-channel retailing, taking advantage of both brick-and-mortar and online methods and integrating them seamlessly.

Related topics: Retail, Retail Sales