It’s no secret that the competitive landscape for retailers is a tough one. As e-commerce has emerged as a war zone of retail competition in recent years, the struggle has been real. And online retail leaders like Amazon have made it increasingly difficult demanding many companies to change. Understanding this, it is worth noting that this retail competition has driven prominent retailers to adopt new programs and strategies. Thus, exploring how the four top retailers plan on handling this retail landscape moving forward is certainly worthwhile and likewise intriguing.
With this in mind, Target, Costco, Walmart, and Amazon have each invested significant monies and efforts toward change. The fierce retail competition present has required these companies to explore new ways of reaching consumers. Though all 4 companies are pursuing major changes, different approaches have been considered. Naturally, the strategy embraced reflects its current state in the marketplace. But likewise, strategy decisions also pertain to how each interprets their retail challenges ahead. The following offers a snapshot of how each is handling the pressure of the current grocery store wars.
Target – Realizing Past Investments Today
Over the past several years, Target has been making sizable investments into some dynamic changes. Seeing a need to increase e-commerce sales, the company has developed several new strategies. These include new offerings like same-day delivery through Script as well as in-store online order pickups. Likewise, Target now offers Drive-Up, where employees load customer orders into their cars. These new offerings in addition to same-day order fulfillment have led to an 80 percent economic growth for Target. And Target plans to address ongoing retail competition by opening smaller format stores near colleges and underserved neighborhoods. Ultimately, Target hopes this will allow them to overcome many of the retail challenges being faced today.
“Members trust that they are going to get a good deal on whatever they buy [at Costco]. I think the fact that it has been doing that for decades has enabled it to withstand the online onslaught.” – Timothy Campbell, Director at Kantar Consulting
Costco – An Enviable Retail Competition Model
While many companies facing retail competition struggled, Costco has enjoyed a membership model that seems ideal. Despite having a lower gross margin on sales, Costco makes up the difference in membership fees. This not only makes for more predictable revenues, but it also creates customer loyalty. In fact, Costco enjoys a 90 percent membership renewal rate. This combined with the company’s bulk product sales pricing has enabled it to withstand Amazon’s market dominance as of late. At the same time, Costco has also adopted same-day and 2-day delivery options for its customers. It’s not surprising these strategies have placed Costco in a very attractive position. In part, this explains why its stock has increased by nearly 95 percent in the last year.
“Walmart remains in a good place. Although Walmart’s growth rate softened in the final quarter [of 2019], the results are nonetheless respectable.” – Neil Saunders, Managing Director of GlobalData Retail
Walmart – Innovations to Take on Amazon
As the largest brick-and-mortar retailer in the world, Walmart is well accustomed to weathering retail competition. For many years, Walmart has faced challenges from Target in this category. But today, both have settled into their own niche. While Target is excelling in apparel, Walmart dominates in home goods. But both companies must now manage the retail challenges that Amazon poses. For Walmart, this has meant major investments in innovative e-commerce pursuits, which will likely be realized in the near future. And this year, Walmart is expected to launch its Walmart +, a $98/year membership plan similar to Amazon Prime. In addition to unlimited same-day deliveries for groceries, this will also allow members discounts on gas and pharmacy prescriptions. As is evident, Costco and Amazon are not the only retailers seeing the advantages of a membership model.
“Amazon’s primary mission is to get you to say ‘Amazon’ every day of your life. … [It] is the only one who can afford to make the entire grocery category as a loss leader.” – Brendan Witcher, a Principal Retail Analyst with Forrester Research
Amazon – The Pervasive Retail Behemoth
Amazon started its Prime membership program in 2005. Today, it now boasts more than 150 million members and controls 40 percent of the online e-commerce retail sales. However, despite these advantages and its influence on the retail industry, Amazon also faces retail challenges. With Target and Walmart enhancing their digital and delivery offerings, Amazon likely feels some pressure. As a result, Amazon is opening cashier-less, full-size grocery stores call Go Grocery. Though margins in this retail sector are lower, Amazon can tolerate low profits with difficulty. Earning larger revenues from its cloud services, Amazon is able to compete with other retailers on price and services both. And this is a major reason Amazon continues to be king.
“The best retailers have innovated so that the physical store has the upper hand again. I think the next decade is tough for Amazon, they are on their heels.” – Ron Johnson, former CEO of Apple Store chief and former CEO of J.C. Penney
A Decade of Intense Retail Competition Ahead
There is little doubt that the coming decade will see many retail challenges for the retail industry. Consumers are becoming increasingly accustomed to rapid delivery and the conveniences of e-commerce online. Thus, innovations that further enhance these customer benefits will likely offer retailers huge advantages. But at the same time, conveniences that enhance in-store experiences also appeal to retail consumers. This is why all major companies facing retail competition are investing in these areas. And of course, the predictability and loyalty incentives of membership models look to be attractive as well. These are the strategies that all major companies are considering in dealing with retail competition. And each has its own version of how to adopt these strategies to deal with the retail challenges ahead. Presently, it’s hard to predict which major retailer will come out on top. But the approaches each is pursuing all appear to have the notable potential for continued success.