These Kings Of Retail Aren't Dead Yet

By Chad Henage - January 26, 2012 | Tickers: AMZN, EBAY, TGT, WMT | 0 Comments

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Nearly everyone knows about either Target (NYSE: TGT) or Walmart (NYSE: WMT). There are a lot of competitive threats to these two companies and many people are willing to throw them out with the trash. Does the thesis add up that more and more people will shop online and will forgo their trip to a physical store? Is there anything proactive that Target or Walmart can do to stop this from happening? Let's see where the two companies are right now and then see what they could do to make sure they stay the kings of retail.

First for some numbers, let's compare Target and Walmart to their two main online competitors eBay (NASDAQ: EBAY) and Amazon.com (NASDAQ: AMZN). Here is what we find:

We can tell from this that analysts expect Amazon to continue to steal sales from Target and Walmart. Is showrooming (customers visiting the store to look, and then buying the item online) going to spell the slow decline of the traditional retailer? Let's look at what Target and Walmart do well and what can they do better.

What do Target and Walmart do well?

First, Target and Walmart have expanded into groceries, something Amazon cannot easily compete with. For 99% of the country getting food and household items is about a weekly trip to the store. In many cases these customers are choosing Target or Walmart to do this grocery shopping if they have the expanded assortment of food and frozen items. Focus number one has to be to expand the grocery area of every single store. While groceries are a lower margin business, the consistency of the business helps to make up for this.

Focus number two is to improve the clothing selection in the stores. Customers like to try on clothes before they buy them. Most customers buy clothes in person more often than they buy online. 

What can Target and Walmart change?

First, install kiosks to take care of selling items that take up a lot of space. Imagine if instead of aisles of CDs, DVDs, Blu-rays, and video games you were presented with kiosks for each of these items. I am convinced that shoppers would rather search a kiosk touch screen for the specific item they are looking for rather than walk up and down all of those aisles. I can also see Target going to a kiosk of similar capabilities to sell printer cartridges. Most customers don't know what ink they need, so allow them to choose their printer and have the kiosk find the right ink for them. This would also lower a shoplifting threat as I doubt a shoplifter is going to stand at a kiosk and wait for it to dispense the items they are trying to steal. This idea would save a massive amount of space and still allows the customer to browse the selections available. In addition, the kiosks would keep better track of what is selling and what isn't which leads to a more efficient use of inventory.

Second, site-to-store has to be a greater emphasis. Since the store interaction is limited to where the item is picked up, the more this happens, the less staffing costs would be. Many times the item is available sooner than if you bought it online and had it shipped. If there is anything wrong you can take it back to the store instead of having to ship it back. This physical presence in the case of returns is a competitive advantage online retailers don't have.

Finally, self checkout at every store is a must. One reason people shop online is to avoid having to wait in line at stores. The average store can install two self-checkout stations in the space that one regular cashier's line would take. If there are 10 checkout lines and half are dedicated to self checkout you have increased your available registers by 50%. Since self checkout normally only requires one cashier per four stations this is a more efficient use of staffing as well.

If Target and Walmart were to make some of these changes they could open smaller stores with less staff. These stores would be more efficient, less costly to open and maintain, and would continue to allow one-stop shopping. I know they have their challenges, but I wouldn't count out these two kings of retailing just yet.

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