Retail is not what it used to be. Hanging out at the mall was once the cool thing to do; now people seek convenience and turn to online shopping instead. This change in customer attitude forces retailers to evolve–and in an industry where a 5% decline in revenue can lead to a 50% to 90% drop in net profit, retailers who don’t evolve, die.
Amazon takes the next evolutionary step
Amazon.com, Inc. (NASDAQ:AMZN) has focused on its infrastructure at the cost of profit. It developed an extensive system of over 40 warehouses, manned by both humans and now robots, thanks to Amazon.com, Inc. (NASDAQ:AMZN)’s acquisition of robotics maker Kiva. After initial losses, it entered the black in 2002 and has been profitable ever since.
Amazon.com, Inc. (NASDAQ:AMZN)’s investment not only built the business, but it also laid the groundwork for the future of retail. It discovered how to efficiently and conveniently show and send customers their goods. For example, its logistics system allows it to send packages at an average cost of $3 to $4 apiece. This is about half of what Wal-Mart Stores, Inc. (NYSE:WMT) must pay per parcel.
But what is truly impressive is Amazon.com, Inc. (NASDAQ:AMZN)’s $61.1 billion in sales, representing over 26% of all online sales last year. What’s more, analysts predict that number will grow to $74.4 billion in 2013. Because of Amazon’s success, other retailers must evolve.
Macy’s evolves with customer demands
Macy’s, Inc. (NYSE:M) has established itself as a household name selling clothes, household goods, make-up, and much more. Macy’s, Inc. (NYSE:M) is currently upgrading its stature by implementing its own unique approach for the modern day retail environment.
Last fall, the department store announced it would revamp its stores. Since then, Macy’s has added interactive digital displays in many stores to enhance a customers’ understanding of Macy’s, Inc. (NYSE:M) products. With the upgrade, customers can outfit a mannequin with the product in question. The result? Macy’s, Inc. (NYSE:M) creates a “stickier” relationship with its customers, one that has evolved into more consultative selling. In short, Macy’s, Inc. (NYSE:M) went from only selling products, to allowing customers to interact with those products before purchasing.
The store has also transformed how it distributes products to customers. Instead of shipping online purchases from warehouses, it will distribute an item from a stores overstock. This helps Macy’s move merchandise that is not selling. Furthermore, the company ships online purchases to stores for customers who desire that method. Upgrading its stores and distribution channels allows it to meet customer’s evolving expectations.
Wal-Mart slowly adapts
Wal-Mart Stores, Inc. (NYSE:WMT) had good intentions of transforming its e-commerce to resemble companies such as Amazon.com, Inc. (NASDAQ:AMZN). But, good intentions mean little to the bottom line.
As online sales in the US rose 16% last year to $224.3 billion, Wal-Mart Stores, Inc. (NYSE:WMT) was only able to capture $7.7 billion of that. Its online sales were just 1.7% of its $443.85 billion total last year. To catch up, the company is attempting to copy Amazon.com, Inc. (NASDAQ:AMZN).