Who Will Steer Retail Sector In 2018: AMZN, WMT Or TGT?

2017 has undoubtedly been a tough year for the retailers, who struggled to maintain good business due to changing preferences and habits of consumers. The year saw an outbreak of online shopping fervor, which almost put the existence of traditional and department store retailers in question. Increased promotions, price wars, lower store and mall traffic, brick-and-mortar store closures, strengthening of online and omni-channel portals were some of the common trends witnessed through the year.

Additionally, the retail sector saw some renowned retailers file bankruptcy, including small mom-and-pop stores as well as major retailers. Some names on the list were Toys R Us, Payless Shoes, Gymboree and Rue21. A major reason behind the demise of these stores was the absence of online presence as consumers today prefer to use smartphones and tablets to shop, instead of spending time in a brick-and-mortar outlet.

Hence, the winners in today’s market are those taking strides to boost online presence through investments in enhancement of digital and mobile offerings, alongside improving product acceptance. Further, retailers are adopting various initiatives to improve omni-channel capabilities. Through these initiatives retailers are not only enhancing online business but also reviving the importance of physical stores. Some omni-channel capabilities that were successful in 2017 include “Buy Online, Pick-Up In Store”, “Ship from Store”, “Find-in-Store”, “Reserve-in-Store”, “Order in Store”, “Reserve Online and Try In-Store”, “Buy Online, Return In Store”, “Click and Collect” and same-day delivery services.

Further, retailers have been taking steps to enhance the capacities of distribution centers to improve deliveries of goods purchased online. Retailers gaining from the roll out if these capabilities and improved distribution centers include The Gap Inc. (NYSE:GPS) , Nordstrom Inc. (NYSE:JWN) , Macy’s Inc. (NYSE:M) , Decker’s Outdoor Corporation (NYSE:DECK) , among others.

Retailers’ omni-channel strategies were more prominent this holiday season, when retailers came up with interesting offers to lure customers. Apart from early-hour store openings, huge discounts, promotional strategies, free shipping on online purchases, price match guarantee and enticing gift ideas were some offers shoppers could not resist this holiday season. This, along with a strengthening economy and a stable labor market, led to a successful holiday season for retailers in long time.

Looking ahead, we anticipate the optimism from the holiday fest to continue in 2018, as retailers’ omni-channel efforts will continue to lure shoppers. That said, we are here to analyze some of the retailers and their enticing strategies, which have the ability to hook up customers through the New Year.

Retailers Poised to Steer the Sector’s Growth in 2018

On top of the list is e-retailing giant, Amazon.com Inc. (NASDAQ:AMZN) . The popularity that the company has garnered in recent years is unprecedented. The company’s technological expertise is the mantra for its ability to provide a seamless shopping experience. Its user-friendly app and website, impressive product assortment, constant innovations, along with seamless payment and checkout system have helped it to become consumers’ favorite shopping destination.

Amazon’s retail business is nearly unbeatable on grounds of price, choice, and convenience with the help of a solid loyalty system in Prime and its FBA strategy. The company continues to push advantages exclusively to Prime members, consequently encouraging them to spend more on Amazon. Further, the company’s strategy of gradually merging online and offline retail looks promising. The company’s online and offline feature, added to its bookstores has gained significant popularity in recent times. Moreover, the company is taking this forward with innovations such as drive-in-grocery delivery service (AmazonFresh Pickup - order groceries online and collect them from a store nearby) and “cashier-less” stores (Amazon Go – the company’s first brick-and mortar grocery store).

These strategies are likely to fend off competition arising from traditional retailers building their e-commerce businesses as well as other e-retailing counterparts. Further, the company is continually expanding offerings through acquisitions and pacts with leading brands. The company’s recent takeover of grocery retailer, Whole Foods Market Inc (NASDAQ:WFM).; and agreement with Nike Inc. (NYSE:NKE) to directly sell products on Amazon.com, are examples of its expansion strategy.

Driven by these efforts, the company recorded 25% growth in net sales, which came in at roughly $38 billion in the second quarter of 2017. When most retailers are struggling to boost their top lines, this Zacks Rank #3 (Hold) company’s growth is a clear indication of how well it poised to capture the lion’s share.

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Next comes the supermarket chain, Wal-Mart Stores Inc. (NYSE:WMT) , which is putting in due efforts to neutralize the dominance of Amazon in the retail space. The company’s latest strategy of keeping online prices almost at par with Amazon during the holiday season has left an indelible impression on the minds of industry gurus. Sources revealed that Walmart’s prices were just 0.3% higher than Amazon’s, clearly reflecting the company’s efforts to gain a good share this holiday season.

While this was a strategy to counter competition, particularly this holiday season, Wal-Mart has been continually taking steps to boost e-commerce sales through acquisitions, alliances and enhanced delivery and payment systems. Walmart’s buyouts of Bonobos, ShoeBuy, Moosejaw, ModCloth and Jet.com, along with its Walmart Pay mobile payment system and Mobile Express Returns program underscore its quest to accelerate online business.

Further, Walmart’s efforts to enhance delivery services resonate well with its strategy of growing online grocery sales. For this, the company’s recent acquisition of a delivery startup Parcel, Inc., and previous agreements with ride hailing services Uber and Lyft for speedy online grocery deliveries, have been notable. Additionally, the Walmart Pickup program enables customers to place orders online and then pick them up at a store for free. Further, the company continues to test same-day and next-day delivery to enhance services further.

Consequently, Walmart’s U.S. e-commerce sales soared 50% in the third quarter of fiscal 2018, primarily owing to Walmart.com’s performance, including significant contributions from Walmart’s online grocery service. The company currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Last, but not the least, we have Target Corporation (NYSE:TGT) , a department store chain that is leaving no stone unturned to stay in business in the current competitive retail landscape. The company has been deploying resources to significantly develop online platform as well as store facilities to make shopping more convenient for customers. In a recent move, the company announced price-cuts for various products, following Amazon’s decision to slash prices at the recent acquired Whole Foods business.

Further, the company has been emphasizing on growth of e-commerce business, through the launch of an international version of its website, expanding merchandise assortments through introduction of new brands, aggressive cost reduction strategy, rationalization of supply chain with same-day delivery of in-store purchases, as well as technology and process improvements. Further, it waged war against other retail big-wigs by aggressively cutting prices on a range of items and launched curbside pickup program, at 50 Twin Cities stores.

Additionally, to leave a mark in the booming online grocery delivery market, the company has teamed with online grocery delivery service Instacart and made significant headway in the same-day delivery race by acquiring grocery delivery company Shipt. Further, the company’s Target Restock program that allows customers to restock their shipping box with essential items online and get them delivered at door steps by the next business day for a nominal charge. Moreover, in order to improve supply chain and expand delivery capabilities, Target acquired Grand Junction. We believe these efforts will help the company provide some solid competition to big-wigs in the retail space. The company currently carries a Zacks Rank #3.

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