3 Retailers That Don’t Need to Fear Amazon.com

On Oct. 30, Jim Cramer categorized Amazon.com (NASDAQ: AMZN  ) as being on "a mission to take over the world, becoming not just the number one online retailer, but the premier global marketplace and fulfillment center." The two retailers (and one e-tailer) below have invested heavily in online initiatives that severely downplay the threat of competition from Amazon.

Focused on expanding e-commerce
Over the past several months, Best Buy (NYSE: BBY  ) has made e-commerce a significant focus of its transformation plan and has laid out a number of initiatives to increase traffic and boost sales. Some of these initiatives include a new search platform (replacing the 10-year-old search platform), improved product reviews, site navigation optimization, and an expanded product assortment. Most importantly, perhaps, is Best Buy's recently-introduced price-matching policy, where prices found on Amazon.com will be honored.

A strong feature that Amazon can never duplicate is Best Buy's "buy online and pick up in store" concept. According to Deloitte's annual holiday survey released on Oct. 22, 2013, more than one-third (36%) of shoppers plan to buy online and pick up in the store.

Recently, eBay  (NASDAQ: EBAY  ) teamed up with Best Buy to allow customers to "choose how, where, and when they receive purchases." Consumers can buy online through Best Buy's eBay page and pick up items in the store on the same day.

It is also important to note that the company's partnership with Apple is a key differentiator against Amazon, which does not offer the iPad or iPad Mini. With refreshes of these Apple products hitting the market in time for the holiday shopping season, Best Buy holds a huge advantage over Amazon, as the iPad is expected to be one of the top-selling products this year.

Analysts at R.W. Baird & Co. noted that Amazon's recently implemented $35 minimum purchase requirement for free shipping actually benefits eBay. "We would expect that the somewhat higher threshold for free shipping on Amazon could, on the margin, benefit eBay, where more value-oriented shoppers may find discounted shipping on cheaper items." The analyst also noted that "Amazon's higher threshold could negatively impact some third-party seller, who may look to eBay volume."

eBay's PayPal segment is focused on highlighting Amazon's minimum shipping hike for the upcoming holiday shopping season.  PayPal is working with other retailers to offer two-day free shipping with no minimum purchase amount, and no additional fees when customers pay with PayPal. Free shipping is absolutely one of the most important marketing pitches an e-tailer can have.

Offline and old school
The growth of Amazon.com has put every brick and mortar retailer on notice, and Home Depot (NYSE: HD  ) is no exception. Home Depot currently generates around 2% of its total sales online, making it a prime target for Amazon.

Home Depot is in the process of fine tuning its online implementation to offer consumers several shipping options. These options include having online purchases delivered to the home, online purchases picked up in stores, or for rarer items, online purchases shipped to a store for future pickup.

There are only a few areas where Home Depot faces competition. Many items that the company sells are not meant to be purchased online (through any retailer), as they are either logistically complicated or time-sensitive, such as a device used to repair a leaking toilet.

The first obvious area where competition for online sales exists is in tools and faucets, both of which can easily be shipped to consumers.  Home décor also has an online appeal, given the large variety of styles and the fact that many home improvement projects are planned out over a longer time period, allowing consumers to shop around for the best prices.

To fend off Amazon, Home Depot is in the process of making a major logistics commitment to its online platform with the recent construction of a one million square foot distribution center in Atlanta. The facility is expected to open in early 2014, with a West Coast facility in Los Angeles expected to open around the same time.

Home Depot can use its distribution facilities to improve supply chain logistics to both its store network as well as online consumers. In addition, a distribution facility of one million square feet can hold 100,000 stock-keeping units, or SKUs, compared to an average of 35,000 SKUs within brick-and-mortar stores. This gives Home Depot the ability to diversify into areas that may not be appropriate to sell within stores and can only be purchased online.

Despite recording $1 billion in online sales compared to a total of $75 billion in sales, management at Home Depot is taking any potential risk very seriously, even though the company has a smaller percentage of total products under threat of competition. This is completely the opposite of a retailer like Target, where almost every item it sells in stores can be purchased on Amazon.com.

The future of retail
Today's consumers are concerned with only two characteristics: price and quality. Equipped with an internet-connected device, a consumer can enter any brick and mortar store and, within seconds, compare prices across many retailers.

The retailers discussed here are certainly not immune to online competition, but are in a substantially better position than other retailers to fight e-tailer giants.

Who wins as Wal-Mart losese?
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  • Report this Comment On November 10, 2013, at 1:23 AM, RyanPeckyno wrote:

    Good article -- I would like to see what fools think about WMT's strategy to fend off Amazon.

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