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The consumer is back ... sort of. The holiday shopping season was merrier for some retailers than others. That suggests investors should be picky about retail stocks.
The International Council of Shopping Centers estimates retail sales for November and December rose 3.8% year over year. Some retailers relied on aggressive pricing to move merchandise. In contrast, comScore reports online sales grew 12% to $32.6 billion. Roughly 10% of retail sales (excluding automobile and gasoline purchases) are now online, according to SpendingPulse.
Pure-play the trend
Investors playing the shift to online shopping should probably focus on pure-plays. To wit, Target (NYSE: TGT ) has an online presence, but the company's same-store sales for November and December rose only 2.6%. So let's talk Amazon (Nasdaq: AMZN ) .
Near the bottom of the page-plus of "highlights" in Amazon's latest earnings release was a bullet noting that electronics and other general merchandise sales grew 60% in the quarter. It grew 66% in 2010. In contrast, media sales grew only 12% in the fourth quarter and 18% in 2010. Electronics and other general merchandise accounted for 57% of fourth-quarter sales and 54% of 2010 sales.
The popular Kindle e-reader is contributing to the strong growth in electronics and other general merchandise. But don't let that blind you to other ways Amazon is taking market share. Three-fourths of 28 departments at Amazon.com are electronics and general merchandise; only one is the Kindle department. Amazon has become a general store ... and one that is getting a growing share of my wallet.
Winning by not losing
That begs the question of which retailers are losing sales to Amazon. After all, successful investing isn't just about winning. It's about not losing. So who are the losers?
Best Buy (NYSE: BBY ) seems to be one. The company's December same-store sales fell 4% year over year. The disappointing results were at least partially blamed on soft demand for new TVs. But in a recent Wall Street Journal story, Best Buy was used as an example of a retailer that lost a sale to Amazon because a shopper in a Best Buy store used his iPhone to compare prices.
Greg Girard of IDC Retail Insights notes that about 45% of customers with smartphones use them to price shop. What, only 45%? That figure probably has only one way to go: up. Amazon launched an iPhone price comparison app on Nov. 22 that makes it even easier. In a price war, the low-cost leader -- likely Amazon -- wins. It can't help that an Accenture study found 73% of smartphone-equipped shoppers prefer getting basic assistance from their phone than a retail clerk. Ouch.
E-receipts confirm Best Buy has been losing to Amazon at my household. The purchases: an HDTV, universal remote, TV stand, hard drive, and Bluetooth headset. The score: Amazon: 5, Best Buy: 0.
That sent me looking through e-receipts to find out what business Amazon has taken from other retailers. Although anecdotal, don't say you weren't warned. Perhaps most telling was the large number of Amazon e-receipts. Let's start with the recurring purchases:
- Office superstores have lost to Amazon on printer ink. Amazon is more convenient and has better prices.
- Pet stores have lost to Amazon on toys and supplies. Amazon is more convenient and has better prices and selection.
- Grocery stores and supermarkets have lost to Amazon on many nonperishable items. (Most of this business goes to a warehouse discounter, so Amazon is getting a big chuck of the remainder.) Amazon has better selection and typically costs 15 to 30 percent less. Amazon's new Subscribe & Save program is saving me about $60 per year on tea alone. It discounts regular Amazon prices and is especially convenient because it puts the shopping on autopilot.
Now for one-off purchases:
- Bed Bath & Beyond (Nasdaq: BBBY ) lost to Amazon on several small appliances and kitchen gadgets. Amazon's prices are better and the reviews can be useful.
- Drugstores and supermarkets used to get 100% of my household supply and toiletry purchases; this has shifted to Amazon and Bed Bath & Beyond, which have better prices.
- Nordstrom (NYSE: JWN ) lost my shoe business because its stores seem to only sporadically stock unusual sizes. Zappos.com, owned by Amazon, is more convenient. (Beyond shoes, Nordstrom has kept my business.)
- I've given up on sporting goods stores. Amazon is more convenient, the reviews can be useful, and the prices and selection seem at least as good.
Amazon is grabbing an ever-larger share of my wallet. Books account for only a fraction of that spending. Moreover, I've only just begun. To date, I've shopped just one-third of Amazon's electronics and general merchandise departments. What have you been -- or could you be -- buying at Amazon? The trend is your friend.
More on Amazon:
Fool contributor Cindy Johnson hates to shop and finds it less painful at Amazon.com. She does not currently own shares in any of the companies in this story. Best Buy is a Motley Fool Inside Value recommendation. Amazon.com, Bed Bath & Beyond, and Best Buy are Motley Fool Stock Advisor picks. The Fool owns shares of Best Buy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.