Walmart Earnings: Amazon May Not Kill Big-Box Retail
(Bloomberg Gadfly) -- Ever since the scale of Amazon.com Inc.'s threat to traditional retail began to reveal itself more than a decade ago, doomsday warnings for big-box stores have been steady and loud -- and not without reason.
General merchandise peddlers such as Wal-Mart Stores Inc. and Target Corp. are directly in the path of the "everything store." Collapses of chains such as Linens 'n Things, Borders and Circuit City suggested more carnage to come.
But now that we're further along in retail's massive transformation, a different reality is taking hold: The big-box format is not necessarily a death sentence.
Need proof? Look at the earnings results this week from three major players in the sector.
Wal-Mart Stores Inc. said Thursday its U.S. comparable sales rose 2.7 percent from a year earlier -- its strongest growth in this measure in eight years. Best Buy Co. Inc. reported domestic comparable sales were up 4.5 percent year-over-year. On Tuesday, Home Depot Inc. delivered a whopping 7.9 percent increase in comparable sales -- thanks partly to hurricane-related spending, but also because it's just doing a good job of selling people appliances and tools.
And for those three companies, the solid results were not outliers; they can reasonably be called a pattern now.
This marked Walmart's thirteenth consecutive quarter of comparable sales growth. Best Buy has had positive comparable sales for all but three of the past 12 quarters. If there were some sort of prize for resilience amid the retail malaise, then Home Depot would surely win it.
Together, these results show a path forward for old-school retailers -- if they move quickly and invest resources wisely.
At Walmart, the one-two punch of cleaning up its U.S. stores and hiring Marc Lore to snap it out of its e-commerce slumber has done wonders. Best Buy has succeeded partly by making sure its store employees have deep product knowledge, giving shoppers a reason to go to its stores instead of to Amazon. Home Depot hardly opens new stores anymore, instead focusing on customer service and regular updates to its merchandise displays and selection.
It helps, too, that some of the early fears about the rise of e-commerce haven't quite turned out like many predicted. Remember all the panic about "showrooming," the idea that people would browse items in stores only to buy them later on Amazon? Best Buy, perhaps more than any other retailer, got wound up in a narrative about this supposed menace, and it responded by making its prices more competitive.
Surely that was a smart move. But it also turns out the opposite shopper behavior -- browsing online, but ultimately making the purchase in a store -- is very common these days, too.
In fact, a recent survey found more U.S. shoppers do this regularly than "showroom."
You can see this tendency toward hybridized shopping in some data Home Depot shared this week. In the latest quarter, 45 percent of its U.S. online orders were picked up at stores. And some 85 percent of returns of its online purchases were made to stores -- creating opportunities to sell shoppers on other items.
Many factors are helping blur the lines between digital and physical shopping, including growing smartphone capabilities and the prevalence of free WiFi.
The successful big-box retailers are the ones finding ways to use these conditions to their advantage. Walmart, for one, is offering discounts on some online purchases if you pick them up in-store. It's expanding curbside grocery pickup, to court online shoppers who find it easier to swerve their car into a Walmart parking lot for a few minutes than to wait around at home for a delivery.
To be clear, I'm not saying every big-boxer is safe. I wrote recently that Dick's Sporting Goods Inc. has a tough road ahead of it, particularly as brands such as Nike Inc. and Under Armour Inc. look to sell more to consumers directly. I struggle to see how Bed Bath & Beyond Inc. is going to beat back intense competition from the likes of Wayfair Inc. and Williams-Sonoma Inc. It's no secret Barnes & Noble Inc. has had a hard time re-imagining itself in the online era.
But the recent track record of certain big-box players shows the problem isn't the format. It's the execution.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Sarah Halzack is a Bloomberg Gadfly columnist covering the consumer and retail industries. She was previously a national retail reporter for the Washington Post.
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