There has been a paradigm shift of buyers to online shopping from in-store shopping. Therefore, online portals such as Amazon.com (NASDAQ:AMZN) have become quite popular where buyers get the best of deals with a lot of variety, that too sitting at home. This has resulted in a new trend wherein customer, check out items in their local stores and end up buying it online. Hence, retailers such as Wal-Mart Stores (NYSE:WMT) are finding it difficult to perform in such circumstances.
Wal-Mart has been losing quite a lot in terms of its market share and revenue as seen in its first quarter results. The company’s earnings declined significantly during the quarter since the cold weather kept customers away from stores. Its same store sales also decreased by 0.2% as store traffic dropped during the period. However, its online sales grew a whopping 27% over last year. Moreover, it has been working hard to increase its revenue by giving low prices to attract customers.
- Warning! GuruFocus has detected 5 Warning Signs with WMT. Click here to check it out.
- WMT 15-Year Financial Data
- The intrinsic value of WMT
- Peter Lynch Chart of WMT
Though walmart.com is nothing new for customers, the added advantages offered by it have been a highlight. It has used its stores as an extension to its website orders. Consumers can purchase the item online and pick it up from any of the Wal-Mart stores at their convenience. Also, there are a significant number of people who are hesitant to use their credit cards online even though they use it in stores often. Moreover, there is a delivery gap in an online transaction which is bridged only by the traditional store retailers in case of an urgent need. These act as strong positives for the store retailers.
Fight back by other traditional players
Wal-Mart is not the only one which has fallen prey to “showrooming”. Industry peer Best Buy (NYSE:BBY) posed similar concerns sometime back. But it managed to come out with great earnings numbers in its recent quarter, though its strategy was different from Wal-Mart. It made its cost structure as light as possible by cutting the flab making it fitter to face the competition of online shopping. It closed its large stores and is now focusing on smaller stores which are much more affordable for the retailer. In addition to that, even Best Buy is among the host of retailers who provide an in-store pickup service for the items shopped online. This also helps the shoppers save on shipping charges and eliminates the wait before they have the product in their hand.
Even Wal-Mart has resorted to smaller format store strategy and has been opening Express stores in the urban areas. These stores are accessible to most of the people because of its location and weigh less on the cost structure. Moreover, it is easier to visit such stores for the smallest of needs.
Since store retailers have been making significant efforts to drive sales higher, the online players are also getting worried and are providing pickup facilities by shipping goods to a physical location in their delivery network. Amazon is still not affected since it offers quick deliveries with a promise of same day shipping to the shoppers. But with the strategic initiatives by retailers and a few disadvantages of on-the-spot need of the product and fear of using credit cards online, it’s difficult to say how long will the online players resist from opening stores. Hence, Amazon might not be able to sustain its growing stature for a long time.